Wall Street down after air strikes on Yemen, but off lows

NEW YORK (Reuters) - U.S. stocks declined on Thursday after Saudi Arabia and its allies launched air strikes on Yemen, but were off session lows as the S&P 500 attempted to hold a key technical level.

Oil prices climbed, with Brent crude up 2.5 percent to $57.89 and U.S. crude up 1.4 percent to $49.92 after warplanes from Saudi Arabia and its allies struck Shi'ite Muslim rebels fighting to oust Yemen's president. Halliburton shares gained 1.5 percent to $44.12.

"The reason the markets are finally paying attention to what is going on there is because Saudi Arabia is coming up against Iran and the outcome is absolutely uncertain at this point in time," said Keith Bliss, senior vice-president at Cuttone & Co in New York.

"If we are now back to including geopolitics in our overall calculus about market moves, and not just monetary policy, then it is going to get a lot more difficult to do and you can expect some outsized volatility as a result."

U.S. stocks have stumbled this week as technology and biotechs sold off. The Nasdaq saw its biggest decline in nearly a year on Wednesday. The S&P 500 was holding above its 100-day moving average support level at about 2,057 after breaking through its 50-day moving average in the prior session.

Semiconductor stocks were under pressure for a fourth straight session, after SanDisk cut its first-quarter and 2015 revenue outlook and withdrew other forecasts. Shares of SanDisk tumbled 15.9 percent to $68.27 as the worst performer on the S&P 500.

The PHLX semiconductor index <.SOX> was down 1.7 percent and is down 7.9 percent for the week.

The Dow Jones industrial average <.DJI> fell 77.98 points, or 0.44 percent, to 17,640.56, the S&P 500 <.SPX> lost 8.69 points, or 0.42 percent, to 2,052.36 and the Nasdaq Composite <.IXIC> dropped 26.55 points, or 0.54 percent, to 4,849.97.

Initial claims for state unemployment benefits dropped 9,000 to a seasonally adjusted 282,000, the lowest level since mid-February, indicating continued strength in the labor market.

Other positive news on the economic front came in the form of the preliminary, or "flash," reading of the Purchasing Managers Index for the services sector, which rose to its highest level since September, according to financial data firm Markit.

Lululemon Athletica forecast earnings and revenue below expectations on Thursday, but its shares rose 6.8 percent to $65.13 after executives said the weak outlook was largely due to temporary West Coast port delays and currency factors.

Consulting and outsourcing company Accenture Plc's quarterly net revenue rose 5 percent, helped by growth in its outsourcing business as North American companies look to cut costs. Its shares rose 6.7 percent to $94.13.

Declining issues outnumbered advancing ones on the NYSE by 1,978 to 881, for a 2.25-to-1 ratio; on the Nasdaq, 1,560 issues fell and 955 advanced, for a 1.63-to-1 ratio.

The S&P 500 was posting 2 new 52-week highs and 5 new lows; the Nasdaq Composite was recording 7 new highs and 37 new lows.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama and Nick Zieminski)