Wall Street sags on profit taking after month-long rally

NEW YORK (Reuters) - Stocks took a breather for a second day on Thursday as investors took profits from an exceptionally strong September that has the S&P 500 up around 9 percent from a month ago.

Investors seemed torn as to whether end-of-quarter positioning or the data should set the market's direction, resulting in a volatile session. After up and down moves of nearly 1 percent, equities were little changed in late afternoon trading.

Stocks were still on track for the biggest monthly gain since April 2009, defying September's track record of being historically the worst month for stocks. In the third quarter, the S&P 500 is up around 11 percent.

But analysts said the S&P 500 seemed to be struggling to break above the current trading range.

Larry McMillan, president of McMillan Analysis Corp, said the stock market continues to act tired, as it is having trouble getting through the 1,145-1,150 area on the S&P 500 index <.SPX>.

"This is the fifth day that it has made a daily high in that range. A close above there would be positive, and the fact that this is the end of the quarter might be enough to push it through," he said in a daily report.

But he noted there are still overbought conditions and negative divergence.

"We think a pullback will be required to rid the market of those items and then it can move higher in line with the intermediate-term buy signals that still exist. Those bullish signals continue to include the equity-only put-call ratios, the broader trend of the CBOE Volatility Index, the breadth oscillator buy signals and the chart of the SPX," he said.

The Dow Jones industrial average <.DJI> fell 39.58 points, or 0.37 percent, to 10,795.70. The Standard & Poor's 500 Index <.SPX> slipped 2.02 points, or 0.18 percent, to 1,142.71. The Nasdaq Composite Index <.IXIC> shed 2.97 points, or 0.12 percent, to 2,373.59.

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

SanDisk Corp lost 2.6 percent to $36.65 and was the biggest loser in the Nasdaq 100 <.NDX>. The Philadelphia semiconductor index <.SOX> fell 0.8 percent.

In the options market, bearish activity was detected in Micron Technology Inc about a week before its quarterly results, and in Dell Inc , as some investors appear to be taking defensive positions.

"Option plays in both Dell and in Micron Tech today appear to be investors protecting their recent gains in these respective stocks," said Joe Kinahan, TD Ameritrade's chief derivatives strategist.

"The common thread in both of these tech stocks is that investors are nervous after a spectacular September for stocks and are looking for ways to hedge their positions and still enjoy further upside if we continue to rally."

The Dow's biggest advancer was Boeing Co, up 0.9 percent at $66.59 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 4.1 percent to $38.97 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 4.4 percent to $54.06 after it agreed to buy two Japanese life insurance units from AIG for $4.2 billion.

The market had opened higher after data showed 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, as measured by gross domestic product. 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.

(Reporting by Angela Moon; Additional reporting by Doris Frankel; Editing by Jan Paschal)

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