Wall Street drops as data increase uncertainty

NEW YORK (Reuters) - Stocks fell on Thursday as economic data sent mixed signals on the recovery a day before the critical April payrolls report.

While earnings were strong and the latest jobless claims report was encouraging, a slower-than-expected reading on growth in the huge U.S. services sector and weakness in retail stocks drove the day's trading.

Nonetheless, the S&P 500 remained close to four-year highs reached in early April.

Initial jobless claims posted their biggest weekly drop since May 2011 and countered Wednesday's weaker report on private-sector hiring.

The Institute for Supply Management's report on Thursday showed the pace of growth in the large U.S. services sector slowed more than expected in April, with drops in both new orders and employment. That was in contrast to the ISM's report on Tuesday, which showed U.S. manufacturing activity picked up in April.

"This is a continuation of the volatility and fits and starts we've seen in economic data, and that's causing investors to take a wait-and-see attitude before tomorrow," said Chuck Carlson, chief executive of Horizon Investment Services LLC in Hammond, Indiana.

Shares of Green Mountain Coffee Roasters Inc. plummeted, losing almost 50 percent to $25.52 a day after the company badly missed sales estimates for the second time in three quarters. The stock was by far the biggest decliner in the Nasdaq 100 .

The Dow Jones industrial average was down 88.17 points, or 0.66 percent, at 13,180.40. The Standard & Poor's 500 Index was down 12.96 points, or 0.92 percent, at 1,389.35. The Nasdaq Composite Index was down 39.55 points, or 1.29 percent, at 3,020.30.

The S&P 500 declined in April, the first monthly drop since November, on softening domestic data, coupled with flare-ups in the euro zone's debt crisis.

The benchmark S&P 500 index has struggled to convincingly break above the 1,400 level, a key resistance point, without stronger proof of the economic recovery, even as earnings have largely topped analysts' expectations.

Retail stocks fell after several large chains missed sales estimates in April. The results were a troubling sign for consumer spending.

Gap Inc fell 1.5 percent to $28.69 while Target Corp dropped 2.9 percent to $56.28. The S&P retail index lost 1 percent.

"Retail sales were mixed at best," said Allen Sinai, chief executive of Decision Economics Inc in New York. "As far as consumer fundamentals go, we're better than we were a few months ago, but we're still far from the good old days."

General Motors Co lost 1.9 percent to $22.49 after analysts said the carmaker's North America outlook implied results for the first nine months of the year would fall short of expectations.

Health Net Inc slid 25 percent to $27.24 after profit missed expectations and the insurer cut its forecast. The Morgan Stanley healthcare payor index dropped 4.5 percent.

Of the 391 companies in the S&P 500 index reporting results, 68.3 percent have exceeded expectations, according to Thomson Reuters data through Thursday morning.

Earnings were scheduled from 35 S&P 500 companies on Thursday, including American International Group Inc and Kraft Foods Inc .

Dutch food and chemicals group DSM agreed to buy medical device maker Kensey Nash Corp for $360 million, driving Kensey Nash shares up 32.2 percent to $38.35.

(Editing by Jan Paschal)