Stocks declined on Thursday, but were off session lows, as investors weighed sluggish economic figures from around the world against efforts by central banks to prop up their respective economies with strong stimulus measures.
The number of Americans filing new claims for jobless benefits fell last week, but from an upwardly revised number the prior week, with the underlying tone of the report pointing to some weakening in the labor market.
A separate report showed factory activity in the U.S. mid-Atlantic region shrank for a fifth straight month in September, although the drop was less than expected.
Transportation stocks, sensitive to the nation's economic fortunes, were among the worst performers, with the Dow Jones Transportation average <.DJT> dropping 2.7 percent.
Railroad company Norfolk Southern Corp said smaller shipments of coal and merchandise and lower fuel-surcharge revenue would crimp its third-quarter earnings compared with a year earlier. Norfolk shares slumped 8.8 percent to $66.28.
Expectations for central bank action had sent the S&P 500 up more than 6 percent since the start of August. But on Thursday, the index was on pace for a third modest decline over the past four sessions as the slew of weak economic data has overshadowed optimism spurred by recent global stimulus measures.
"What we are seeing play out here is the effect of QE3, or QE infinity, because it is keeping a bid under the price of stocks," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.
"We are clearly seeing increasing evidence of a global slowdown, that is an issue from a fundamental and a macro standpoint, but the prospect of an unlimited QE is an offset that we haven't had previously in conjunction with a slowing global economy.
Manufacturing in China contracted for an 11th straight month in September, according to a private sector survey of factory managers; in the euro zone, a downturn in activity in the service sector steepened this month at the fastest pace since July 2009.
The Dow Jones industrial average <.DJI> shed 4.08 points, or 0.03 percent, to 13,573.88. The Standard & Poor's 500 Index <.SPX> dropped 2.75 points, or 0.19 percent, to 1,458.30. The Nasdaq Composite Index <.IXIC> lost 9.90 points, or 0.31 percent, to 3,172.72.
UBS raised its target level for the S&P 500 by the end of 2012 to 1,525 from 1,375 Thursday, saying equity markets will climb after aggressive monetary easing by central banks.
"Over the short run, we believe that the 'risk on' trade will continue, with a rotation into the most volatile and economically sensitive stocks," said UBS's chief U.S. equity strategist Jonathan Golub in a research note.
Retailers' shares also fell. Bed, Bath & Beyond tumbled 8 percent to $63.27 after the company posted quarterly results that narrowly missed Wall Street estimates on account of higher costs.
Fellow retailer J.C. Penney Co Inc slumped 9.4 percent to $26.36 after Chief Executive Ron Johnson said new shops within stores are doing much better than other parts of its department stores, but it was "way too early to draw conclusions" as the retailer is still rolling out the strategy.
The Morgan Stanley retail index <.MVR> declined 1 percent.
In a bright spot for the market, Trulia Inc surged more than 40 percent to a high of $25.51 in its market debut, as investors bet an improvement in the housing market would benefit the online real estate listing service.
(Editing by Bernadette Baum)