Blue-chip stocks bounced back from early declines and finished slightly lower, as investors weighed fresh worries over European banks against better-than-expected readings on the domestic labor market.
The Dow Jones Industrial Average fell 2.72 points, or 0.02%, to 12415.70, after falling as much as 134 points at its intraday low. The blue-chip index notched its first decline of 2012 after jumping 1.6% during the first two trading days of the year.
Boeing was the Dow's biggest decliner, falling 80 cents, or 1.1%, to $75.53. Bank of America pulled on the upside, gaining 50 cents, or 8.6%, to 6.31. The stock, which was the Dow's biggest laggard last year, has gained 13% the last three days.
The Standard & Poor's 500-stock index rose 3.76 points, or 0.3%, to 1281.06, registering its highest close since Oct. 28. Financial stocks paced the S&P 500's gains. SunTrust Banks rose 1.00, or 5.4%, to 19.66. Morgan Stanley advanced 34 cents, or 2.1%, to 16.28.
The technology-oriented Nasdaq Composite gained 21.50 points, or 0.8%, to 2669.86.
In Europe, bank shares fell as fears over the ability of financial institutions to raise capital weighed on sentiment. The Stoxx Europe 600 dropped 0.9%, with bank stocks among the biggest decliners.
Italy's largest bank by assets, UniCredit, slid for a second day after announcing a bigger-than-expected discount on a rights offering to raise $9.8 billion to meet new European capital requirements. The move could set the tone for how pricey such moves could be for other lenders. UniCredit dropped 17%.
"[Thursday] morning felt like 2011 all over again," said Michael Shea, managing partner at Direct Access Partners. "There was lukewarm demand for French bonds. UniCredit was getting smacked around. It's not like these things have been resolved, but after Europe closed this market caught a bid. We wouldn't be surprised to see a short-term pop continue from here."
Meanwhile, the euro fell below $1.28 for the first time since September 2010 amid concerns about the region's sovereign-debt crisis.
The euro's drop coincided with a report showing 325,000 new private-sector jobs in the U.S. were created in December, way ahead of the 175,000 amount economists had expected. This was the biggest monthly rise for Automatic Data Processing's monthly hiring report since December 2010.
In a separate reading, jobless claims tumbled by 15,000 to a seasonally adjusted 372,000 in the week ended Dec. 31, according to the Labor Department. This marks the eighth time in the past nine weeks that new claims have come in below 400,000, a level that economists generally say signals more jobs are being added than shed.
Both reports were released ahead of Friday's nonfarm payroll data for December.
"You can hardly say the labor market is healthy, but it's clearly on the path of a slow heal," says Ron Florance, managing director of investment strategy for Wells Fargo Private Bank. "A healthy labor market is the foundation of our economic system. You can't have meaningful economic recovery and growth without the labor market. We're a long way from full employment, but we're moving in the right direction."
Additionally, a reading on the U.S. service sector showed activity rose in December at a pace similar to the prior month.
Asian bourses fell, with China's Shanghai Composite sliding 1% to close at the lowest level since March 2009, and Japan's Nikkei Stock Average shedding 0.8%.
Gold futures settled at a three-week high, up 0.5% to $1,619.40 a troy ounce. Crude-oil prices slumped 1.4% to $101.81 a barrel.
In corporate news, retail sales results for December were mixed, as unseasonably warm weather hurt margins in cold-weather categories.
A number of retailers, including Target, J.C. Penney and Kohl's, lowered their earnings outlooks following disappointing holiday season sales, which pressured consumer stocks. Target dropped 1.49, or 3%, to 48.51. J.C. Penney fell 94 cents, or 2.7%, to 33.97, and Kohl's declined 84 cents, or 1.8%, to 46.52.
Children's Place Retail Stores tumbled 3.49, or 6.6%, to 49.58, after the children's apparel retailer lowered its fiscal fourth-quarter earnings outlook, citing aggressive markdowns and high apparel costs.
Zumiez climbed 4.62, or 18%, to 30.95, after the sporting goods retailer raised its fiscal fourth-quarter earnings outlook, citing better-than-planned holiday sales and product margin.
Eastman Kodak is preparing to seek bankruptcy protection in the coming weeks, according to a report in The Wall Street Journal. Shares slid 5 cents, or 11%, to 42 cents.
Monsanto gained 4.01, or 5.5%, to 76.68, after the agriculture products company reported better-than-expected fiscal first-quarter results. South American demand for the company's corn seed continued to increase. The company indicated its full-year results would be at the high end of projections.
Seagate Technology gained 1.08, or 6.4%, to 17.90. The disk-drive maker lifted its revenue outlook for its fiscal second and third quarters as the impact from Thailand flooding wasn't as bad as expected.
Eli Lilly dropped 41 cents, or 1%, to 40.30. The drug maker indicated its 2012 earnings and revenue expectations would fall short of targets, as Zyprexa patent expiration and pipeline investments weigh on results.
-By Steven Russolillo, Dow Jones Newswires; 212-416-2180; firstname.lastname@example.org