Stocks Retreat Ahead of Debt Vote; Vix Gains

Stocks reversed course in the final hour of trading to end lower amid thin volume Thursday as investors nervously awaited a key vote on a bill to cut the U.S. deficit in Congress this evening.

Stocks were boosted earlier by a handful of encouraging economic news in addition to a slew of positive earnings reports.

S&P 500

The Dow Jones Industrial Average fell 62.44 points, or 0.51 percent, to end at 12,240.11—sliding from an intraday high of 12384.90. The Dow has tumbled almost 4 percent in the last five sessions.

AT&T and ExxonMobil led the blue-chip laggards, while Cisco and Microsoft were among the biggest gainers.

The S&P 500 slipped 4.22 points, or 0.32 percent, to finish at 1,300.67.

While the tech-heavy Nasdaq edged up 1.46 points, or 0.05 percent, to finish at 2,766.25.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, closed at a four-month high above 23.

Among key S&P sectors, telecom and industrials led the laggards, while techs gained.

The debt-ceiling debate has weighed heavily on investor sentiment for most of the week ahead of the Aug. 2 deadline. House Republicans are preparing to vote on a plan to avoid a default, while the legislation faces opposition from Senate Democrats. The White House has also threatened to veto the proposal.

“Whether I’m talking to a corporate CEO or a high net worth investor, Washington has created uncertainty,” Robert McCann, CEO of UBS Wealth Management Americas told CNBC. “We still like the U.S. economy and we think there are a lot of good things going on."

"So overall, we have people in a balanced portfolio…we have to make sure people don’t overreact to any single piece of news,” said McCann.

On the earnings front, Dow component Exxon Mobil fell after earnings rose 41 percent, but results still fell short of analyst expectations.

Royal Dutch Shell earnings shot up above expectationsas oil prices rocketed.

Rival Chevron is scheduled to report earnings Friday.

DuPont reported earnings above analyst forecasts and raised its 2011 guidance.

Meanwhile, Sprint Nextel plunged almost 20 percent after the telecom service provider posted a bigger-than-expected loss as the company had more subscriber defections than expected.

Visa edged higher after the credit-card issuer reported a profit gainon higher payment volumes on Wednesday afternoon.

Meanwhile, Credit Suisse said it would cut 2,000 jobs worldwide after its second quarter saw weak trading activity and was hurt by the strong Swiss franc. Sky News reported that rival HSBC may also announce it will cut thousands of jobs as it embarks on a cost-cutting drive.

Starbucks and Chesapeake Energy are among companies poised to post earnings after-the-bell tonight.

Techs saw a rebound thanks to a handful of robust earnings and a round of analyst upgrades after suffering a sharp selloff in the previous session.

LSI soared after the chipmaker forecast better-than-expected quarterly revenue as the firm gained market share and at least two brokerages raised their price targets. Other semiconductor firms including Texas Instruments , Micron Tech and Broadcom also climbed.

Symantec jumped after the computer security software maker beat profit estimates for the fourth consecutive quarter.

Cisco advanced after Goldman Sachs raised its rating on the tech bellwether to "buy" from "neutral."

However, Akamai plunged almost 20 percent after the Internet delivery company lowered its full-year revenue growth target.

On the IPO front, premium tea retailer Teavanaskyrocketed almost 70 percent on its first day of trading. And Dunkin Brands gained for a second day after soaring on its first day of trading Wednesday.

Treasury prices trimmed gainsafter the government auctioned $29 billion of seven-year notes, which had a high-yield of 2.280 percent and a bid-to-cover of 2.63.

Earlier, investors cheered a handful of positive economic news. Weekly jobless claims declined more than expected last week, dropping below the key 400,000 level for the first time since early April, according to the Labor Department.

"If history is any gauge, the break below 400,000 will be short-lived [and] next week's revision will likely push us above this level," according to Todd Schoenberger, managing director of LandColt Trading.

"Traders realize, though, the timebomb for the markets is actually next Friday when the July nonfarm payrolls report is released. Buyer beware—proceed with caution," he added.

Meanwhile, pending sales of existing U.S. homes unexpectedly rose in Junefrom May and jumped sharply from a year ago, according to the National Association of Realtors.

Daniel Penrod, senior industry analyst at California Credit Union League said the economic numbers imply steady growth ahead.

“It won’t be of the big increases we saw in the past, but will be a steadier growth,” said Penrod. “It’s not fast enough to pull us through a recovery in a 12-month time period, but each time we hit these growth numbers, they build on each other.”

European shares snapped a three-day losing streak amid hopes a solution would be found to the U.S. debt crisis, overshadowing a slew of disappointing earnings results.

On Tap This Week:

FRIDAY: Employment cost index, GDP, Chicago PMI, consumer sentiment, farm prices; Earnings from Chevron, Merck

More on