Retailers were a standout in an otherwise flat market on Thursday as a bigger-than-expected rise in sales at U.S. chain stores helped dispel some of the concern about the U.S. consumer.

The Morgan Stanley retail index <.MVR> rose 2.3 percent, driven higher by companies such as Sears Holdings Corp and Ross Stores Inc , which both rose over 6 percent.

U.S. chain store sales climbed 4.8 percent in January, according to the International Council of Shopping Centers. A sharp fall in claims for jobless benefits and a surging services sector were further signs of economic strength.

Nevertheless, the wider market came under pressure as some investors said stocks were extended after weeks of gains, while a stronger dollar weighed on the natural resource sector.

The Dow Jones Transportation Average <.DJT> and the Russell 2000 index, which have shown signs of topping out recently, were also facing resistance to further gains.

The strength in the retail sector is probably the standout feature today and it might be causing repositioning out of the materials into the retail stocks, said Nick Kalivas, an analyst at MF Global in Chicago.

Kalivas said the material and energy sectors were ripe for profit taking while retail stocks had lagged the rally since the beginning of the year over concerns about the strength of consumer spending.

The Dow Jones industrial average <.DJI> dropped 2.68 points, or 0.02 percent, to 12,039.29. The Standard & Poor's 500 Index <.SPX> fell 0.55 point, or 0.04 percent, to 1,303.48. The Nasdaq Composite Index <.IXIC> lost 0.57 point, or 0.02 percent, to 2,748.99.

Data showed the U.S. services sector grew in January at its fastest pace since August 2005, and initial claims in the latest week for state unemployment benefits fell more than expected.

Also in the retail sector BJ's Wholesale Club Inc said it may put itself up for sale, under pressure from a private equity firm that may make a hostile bid, and its shares jumped 13 percent to $48.58.

Concern that the unrest in Egypt could spread to the wider region and disrupt oil supplies have pressures equities recently.

Merck & Co fell 2.8 percent to $32.87 and was the top drag on the Dow after the drugmaker forecast 2011 earnings below Wall Street forecasts and withdrew its longer-term profit view.

(Editing by Kenneth Barry)

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