The Dow and the S&P 500 slipped on Thursday, on track for three straight days of declines, although jobless claims data showing improvement in the labor market helped offset revived concerns about the euro zone's fiscal stability.
The S&P 500 was on track for its biggest weekly drop of the year and worst weekly performance since mid-December.
But the Nasdaq advanced modestly, buoyed by retailer Bed Bath & Beyond
In another indication that the U.S. labor market is slowly improving, government data on Thursday showed the number of Americans filing claims for new jobless benefits fell to the lowest in nearly four years last week.
The data comes ahead of Friday's key employment report, when the U.S. stock market is closed for the Good Friday holiday.
The jobless claims data remains going in the right direction as the U.S. economy recovers. It also jives with some of the manufacturing numbers we have been getting - like the ISM that remains well above 50 and shows a reasonably good expansion, said Sean Kraus, chief investment officer of CitizensTrust in Pasadena, California.
Investors kept watch on Spain and its ability to meet budget targets in the wake of the Spanish government's poorly received bond sale on Wednesday. The anemic demand for Spain's bonds triggered fears about funding difficulties for weaker euro-zone countries, as the effects of the European Central Bank's huge liquidity injections may be diminishing.
An International Monetary Fund spokesman said on Thursday that Spain is facing severe challenges that call for sustained economic reforms by the government.
Everybody wants to get out of the way with the holiday, the market closed and the jobs data tomorrow, said Seth Setrakian, co-head of U.S. equities at First New York Securities in New York.
Over the last couple of days, a small sense of trepidation came back in that the market is able to correct, and people are kind of re-evaluating their books, saying, 'Where do I want to be positioned over the next three- to six-month horizon now that you've had such a great past six months?'
Economists polled by Reuters expect the nonfarm payrolls report due on Friday will show the U.S. economy added 203,000 jobs in March. That would represent a fourth straight month of solid job creation, marking the longest stretch of monthly employment gains topping 200,000 since 1999.
The Dow Jones industrial average <.DJI> dropped 42.23 points, or 0.32 percent, to 13,032.52. The Standard & Poor's 500 Index <.SPX> lost 3.30 points, or 0.24 percent, to 1,395.66. The Nasdaq Composite Index <.IXIC> gained 7.70 points, or 0.25 percent, to 3,075.79.
Some retailers' shares advanced after the companies reported March same-store sales that topped forecasts as mild weather and an early Easter spurred consumers to shop for bright-colored clothes and other seasonal items. The stronger-than-expected March sales prompted some retailers to raise their profit expectations for the quarter.
Shares of TJX Cos Inc
By mid-afternoon, Bed Bath & Beyond was up 9.3 percent at $72.38 - near its all-time high hit earlier in the day.
For March, the Thomson Reuters Same Store Sales Index registered a robust gain of 4.3 percent, exceeding the forecast of a 3.5 percent rise. Excluding the drug stores, the index rose 6.8 percent, well above the monthly same-store sales gains of 3 percent to 5 percent throughout 2011, according to Thomson Reuters.
PPG Industries Inc
(Editing by Jan Paschal)