Wall Street sags on profit taking as strong month ends

NEW YORK (Reuters) - Stocks fell on Thursday as encouraging data increased positive sentiment, but investors still chose to take profits going out of a strong quarter and the best September in more than 70 years.

In the S&P 500's biggest monthly gain since March 2000, the benchmark index surged 8.6 percent in September on signs of economic stabilization and expectations that the Federal Reserve will take steps to accelerate the recovery. The S&P 500 is up 10.6 percent in the third quarter.

"There's a lot of evening out of positions and profit taking since we've come up nicely this quarter and investors are now a little tepid," said Jay Suskind, senior vice president at Duncan-Williams in Jersey City, New Jersey.

Initial jobless claims fell sharply in the latest week, pointing to modest strengthening in the labor market, while the Commerce Department revised higher its final read on second-quarter economic growth.

That backed up stronger readings for regional business activity indexes in New York City and the U.S. Midwest, seen as early indicators before national surveys on Friday and later next week..

"Today's data was better than expected," Suskind said, but he added that it was not strong enough "for a major move to the upside."

Semiconductor companies, a growth sector that has advanced during the quarter, ranked among the day's losers and weighed on the Nasdaq.

SanDisk Corp slumped 4 percent to $36.13 while the Philadelphia semiconductor index <.SOX> fell 1.6 percent. The S&P information technology index <.GSPT> was off 1 percent, making this the biggest decliner among sectors.

The Dow Jones industrial average <.DJI> slid 56.35 points, or 0.52 percent, to 10,778.93. The Standard & Poor's 500 Index <.SPX> shed 4.99 points, or 0.44 percent, to 1,139.74. The Nasdaq Composite Index <.IXIC> dropped 16.68 points, or 0.70 percent, at 2,359.88.

U.S. crude oil futures for November delivery gained 1.4 percent, or $1.12, to $78.98 per barrel, just off a seven-week high above $79 on the positive U.S. data. In contrast, gold slid 0.7 percent, after hitting a record high of $1,315.81 earlier in the session.

The Dow's biggest advancer was Boeing Co, up 0.4 percent at $66.25 after the aircraft manufacturer said its full-year results would not be hurt by its delaying the first delivery of its 747-8 Freighter, its biggest commercial jet.

American International Group Inc rose 3.5 percent to $38.76 after the insurer and the U.S. government unveiled a plan for the company to repay its $182.3 billion taxpayer bailout.

Prudential Financial Inc shares fell 4.2 percent to $55.15 after the company agreed to buy two Japanese life insurance units from AIG for $4.2 billion.

Mattel Inc lost 1.9 percent to $23.11 after the U.S. Consumer Product Safety Commission said the company's Fisher-Price unit will recall about 10 million toys because of the hazards of injury to children.

Investors' attention has turned to Federal Reserve Chairman Ben Bernanke, who testified before a Senate Banking Committee hearing on implementing the recently passed financial regulation act.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

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