Stocks fell on Thursday as an unexpected rise in initial jobless claims and July retail sales that were mostly weaker than expected underscored persistent concerns about unemployment and consumer spending.

Government data showed initial claims for jobless benefits rose to 479,000 last week, defying analysts' expectations for a dip from the previous week. The report increased investors' caution a day before Friday's critical monthly jobs report and eroded some of the optimism created on Wednesday, when the ADP report showed private employers added more jobs than expected in July.

We had hoped to see some progress on the labor front, but none exists, said Joseph Battipaglia, market strategist at Stifel Nicolaus in Yardley, Pennsylvania. That's discouraging, and it reminds investors that tomorrow's data will be problematic.

Economists polled by Reuters are expecting Friday's U.S. Labor Department report to show a drop of 65,000 in non-farm payrolls in July as temporary U.S. Census Bureau jobs dried up. Private employers are expected to have added 90,000 jobs.

Weakness in consumer spending trends also stayed in focus as the 28 retailers tracked by Thomson Reuters reported July same-store sales that rose only 2.9 percent -- falling short of analysts' expectations. The data showed skittishness about high unemployment and economic conditions has caused consumers to spend mostly on essentials.

The Dow Jones industrial average <.DJI> declined 34.81 points, or 0.33 percent, to 10,645.62. The Standard & Poor's 500 Index <.SPX> shed 4.81 points, or 0.43 percent, to 1,122.43. The Nasdaq Composite Index <.IXIC> slipped 12.74 points, or 0.55 percent, to 2,290.83.

In the retail sector, shares of department store operator JC Penney Co Inc <jcp.n> fell 6.9 percent to $22.30 while youth-oriented apparel chain Aeropostale Inc <aro.n> slumped 5.6 percent to $25.90.

The sales data was unimpressive and points to a consumer who is tapped out, Battipaglia said. If payrolls don't increase and incomes don't rise, it's going to be a bleak picture for retailers for the rest of the year.

There were some bright patches, however, as Target Corp <tgt.n> rose 2.3 percent to $52.72 and Kohl's Inc <kss.n> added 2.7 percent to $48.36.

On the earnings front, broker MF Global Holdings Ltd <mf.n> and electronics retailer hhgregg Inc <hgg.n> both advanced after reporting better-than-expected quarterly results.

MF Global climbed 8.5 percent to $7.26 while hhgregg shot up 8.1 percent to $23.02.

On the downside, media company Viacom Inc <viab.n> and Big Lots Inc <big.n> both fell on weaker-than-expected revenue. Viacom lost 1.4 percent to $33.53 while Big Lots tumbled 7.1 percent to $32.01.

Ford Motor Co <f.n> slid 1.3 percent to $12.94. Earlier, the U.S. Export-Import Bank approved a loan guarantee for Ford to finance $3.1 billion in exports of cars and trucks to customers in Canada and Mexico.

(Editing by Jan Paschal)

Retail