U.S. stocks fell on Thursday, tracking weakness in the euro, as tepid May sales from U.S. retailers curbed investor optimism ahead of what is expected to be a solid payroll report Friday.

Wall Street erased earlier highs as the S&P 500 nearly pierced its key 200-day moving average and the euro weakened against the dollar.

The S&P 500 and the euro have tracked each other very closely over the last 30 days, with a positive 0.89 correlation, The two have tended to move in lock-step since they are barometers of investor appetite for risk. Traders use the euro as a proxy for concerns about the European debt crisis.

The market seems to like it when the euro is stabilizing, and that seems to be a key point, said Tim Ghriskey, chief investment officer of Solaris Asset Management in Bedford Hills, New York.

The Dow Jones industrial average <.DJI> dropped 50.18 points, or 0.49 percent, to 10,199.36. The Standard & Poor's 500 Index <.SPX> shed 3.63 points, or 0.33 percent, to 1,094.75. The Nasdaq Composite Index <.IXIC> gained 0.46 points, or 0.02 percent, to 2,281.53.

The S&P retail index <.RLX> slipped 0.5 percent as retailers posted lackluster May same-store sales -- up 2.5 percent, on average, versus expectations of 2.6 percent growth.

Costco Wholesale Corp fell 2.4 percent to $57.52 after its sales missed estimates, while BJ's Wholesale Club Inc lost 3.4 percent to $38.42. On the upside, Bon-Ton Stores Inc added 1.2 percent to $12.27.

In the latest economic data, the Institute for Supply Management's services index grew for a fifth straight month, while private employers added jobs in May and initial jobless claims fell.

Also, new orders received by U.S. factories rose 1.2 percent in April. Analysts expected an increase of 1.8 percent.

On Friday, the critical May non-farm payrolls report is due, with economists looking for 513,000 non-farm jobs being added to the economy.

There is still a high degree of caution in the markets right now. Many people don't want to step up in front of the jobs report, said Ghriskey.

Health insurers were among the bright spots, boosted by Cigna Corp , which climbed 1.7 percent to $34.34 after the company backed its 2010 earnings outlook.

The Morgan Stanley Healthcare Payor index <.HMO> advanced nearly 1 percent.

(Reporting by Chuck Mikolajczak; editing by Jeffrey Benkoe)