Mixed data sends Wall Street lower ahead of payrolls

NEW YORK (Reuters) - Stocks were lower on Thursday as another round of mixed economic data left a muddled picture of the domestic recovery ahead of Friday's key payrolls report.

Initial claims for state unemployment benefits dropped by 27,000, the biggest weekly drop since May 2011. The report ran counter to data indicating weaker private sector hiring that pushed stocks lower Wednesday.

But a report from the Institute for Supply Management showed the pace of growth in the U.S. services sector slowed more than expected in April and new orders dropped. On Tuesday, the ISM report showed factory activity picked up in April.

"It's par for the course. Obviously we had the real strong manufacturing data two days ago and we are getting a mixed picture on the jobs front as well. So really it's kind of this economy that can't make its mind up. Some of the data is good, some of the data is weak," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.

Softening domestic data coupled with flare-ups in the euro zone debt crisis sent the S&P 500 to a monthly decline in April, the first since November.

The index has struggled to convincingly break above the 1,400 level, a key resistance point, without stronger proof of the recovery, even as corporate earnings have largely topped expectations.

"We've come to the realization earnings have come in better than expected but now we are starting to look very closely at the economic data. We've had that little dip, so now we want to see if it's just a blip. We will know more as we go forward, but that is the big concern," said Detrick.

The Dow Jones industrial average <.DJI> was down 28.30 points, or 0.21 percent, at 13,240.27. The Standard & Poor's 500 Index <.SPX> slipped 3.97 points, or 0.28 percent, at 1,398.34. The Nasdaq Composite Index <.IXIC> was off 10.81 points, or 0.35 percent, at 3,049.04.

Retailers were lower as chains reported April sales. Costco Wholesale Corp's sales missed estimates, sending shares down 2.2 percent to $84.71.

According to Thomson Reuters data, 52.9 percent of retailers missed sales expectations.

General Motors Co lost 2.8 percent to $23.38 after profit beat estimates but analysts said the North America outlook implied results for the first nine months of the year would fall short of expectations.

Health Net Inc slid 24 percent to $27.56 after adjusted profit came in below expectations and the insurer cut its forecast.

The Morgan Stanley healthcare payor index <.HMO> dropped 4.4 percent.

According to Thomson Reuters data through Thursday morning, of the 391 companies in the index reporting results, 68.3 percent have topped expectations.

Earnings were expected 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. Kensey shares surged 32.1 percent to $38.33.

(Reporting By Chuck Mikolajczak; editing by Jeffrey Benkoe)