U.S. stocks inched higher at midday on Thursday, paring earlier gains, as lower energy prices and an unexpected fall in home sales offset optimism stirred by retailers' better-than-expected monthly sales.

Trading was choppy and likely to remain unpredictable for the day as investors awaited the February non-farm payrolls data on Friday, one of the most anticipated reports to assess the economy's health.

As usual, market participants are not making big bets or setting any direction ahead of the data tomorrow, said Kevin Caron, market strategist at Stifel Nicolaus and Co in New Jersey.

The Dow Jones industrial average <.DJI> was up 17.83 points, or 0.17 percent, at 10,414.59. The Standard & Poor's 500 Index <.SPX> was up 1.08 points, or 0.10 percent, at 1,119.87. The Nasdaq Composite Index <.IXIC> was up 1.57 points, or 0.07 percent, at 2,282.25.

The Russell 2000 index of small-cap stocks <.RUT> was on track for another 17-month closing high, a move that suggests it may just be a matter of days before other indexes retest the highs of the rally since March 2009. Fundamentally, small-caps are considered harbingers of an early upturn in the economic cycle since smaller companies are more sensitive than multinationals to domestic business activity.

Positive brokerage notes helped blue chips head higher, with Boeing Co , Walt Disney , and Coca-Cola Co ranking as the Dow's top three gainers.

Better-than-forecast February retail sales, which were expected to have been hurt by the severe weather across the United States, boosted retailers' shares.

But natural gas futures slid after a government report showed an unexpectedly light inventory drawdown. The NYSE Arca Natural Gas index <.XNG> slipped 1 percent, while crude oil futures fell more than 1 percent to slightly below $80 a barrel.

Boeing shares rose 1.5 percent to $65.43 after UBS upgraded the stock to neutral from sell, citing a strong near-term air traffic outlook and improved forecast for aircraft deliveries and earnings. UBS also raised its price target on Boeing's stock to $68 from $50.

UBS also upgraded Coca-Cola to buy from neutral, sending the stock up 1.1 percent to $54.52.

Walt Disney rose 2.4 percent to $32.39 after BofA Merrill Lynch upgraded the stock to buy from neutral, and said the top U.S. entertainment company's 2011 earnings could meaningfully outperform market expectations.

Of 28 retailers reporting sales, 76 percent have topped analysts' expectations, with a median surprise of 2.1 percent, according to Thomson Reuters data.

Target Corp added 2.6 percent to $53.02 after it said same-store sales rose 2.4 percent for the month. The S&P retail index <.RLX> rose 1.1 percent.

Data from the National Association of Realtors showed contracts for pending home sales fell unexpectedly in January, while the government reported that factory orders rose 1.7 percent for the month, in line with expectations.

In a separate report, the government said the number of U.S. workers filing new claims for state unemployment benefits fell as expected last week, while those continuing to receive benefits dropped to its lowest level in over a year.

(Reporting by Angela Moon; Editing by Jan Paschal)