Stocks mostly dipped on Thursday, but the S&P 500 ended its worst week this year as growing pressure on Europe's debt markets revived concerns about the region's financial stability.
The concerns about the euro zone, particularly Spain, overshadowed what is expected to be a solid U.S. jobs report on Friday.
The Dow and the S&P 500 slipped, declining for a third straight day.
But the Nasdaq advanced modestly, buoyed by retailer Bed Bath & Beyond
The S&P 500's loss for the week of 0.7 percent was its biggest weekly decline of the year as yields on Spain's debt continued to march higher and its equity market plumbed lows not seen since the height of the euro zone's crisis last year.
Marc Pado, U.S. market strategist at DowBull.com in San Francisco, said that after the S&P 500's 30 percent gain from its October closing low, investors were nervous that Europe's rising yields could be a harbinger of a repeat of last year's euro-zone debt debacle with its devastating impact on markets.
It's been a non-stop advance that people are getting nervous about, worried about Europe especially, because that's where you can get blindsided, he said.
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 cash U.S. stock market is closed for the Good Friday holiday when the payrolls data is set to be released; CME futures will trade for an abbreviated 45-minute session. The U.S. bond market will be open until noon.
Ahead of the holiday, Thursday's combined volume on the New York Stock Exchange, the Nasdaq and the Amex was just 5.7 billion shares, its lowest in nearly a month. That compares with last year's daily average of 7.84 billion.
The Dow Jones industrial average <.DJI> dropped 14.61 points, or 0.11 percent, to 13,060.14 at the close. The Standard & Poor's 500 Index <.SPX> dipped 0.88 of a point, or 0.06 percent, to 1,398.08. But the Nasdaq Composite Index <.IXIC> gained 12.41 points, or 0.40 percent, to 3,080.50.
The recent losses for stocks are slight, but traders are becoming increasingly concerned about the potential for a more stringent retreat heading into the seasonally weak period starting in May.
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?' said Seth Setrakian, co-head of U.S. equities at First New York Securities in New York.
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 summer 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
At the close, Bed Bath & Beyond was up 8.5 percent at $71.85 - near its all-time high of $72.75 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.
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 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, said Sean Kraus, chief investment officer of CitizensTrust in Pasadena, California.
Spain's ability to meet budget targets was thrown into sharper relief in the wake of the government's poorly received bond sale on Wednesday. The anemic demand for the country'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.
The concern is that the rate the government pays to borrow will reach unsustainable levels, forcing a Greek-style default that would endanger the region's banks and plunge the euro zone further into economic contraction.
An International Monetary Fund spokesman said on Thursday that Spain is facing severe challenges that call for sustained economic reforms by the government.
PPG Industries Inc
(Editing by Jan Paschal)