US STOCKS-Wall St kicks off New Year on lower note

Thu Jan 2, 2014 10:39am EST

* Initial jobless claims decline slightly

* Markit manufacturing increases

* ISM manufacturing in line with expectations

* Indexes off: Dow 0.53 pct, S&P 0.58 pct, Nasdaq 0.72 pct

By Chuck Mikolajczak

NEW YORK, Jan 2 (Reuters) - U.S. stocks declined on Thursday as investors opened the year on a cautious note after the S&P 500 wrapped up its best year since 1997, despite economic data pointing to continued growth in the economy.

The Institute for Supply Management said its index of national factory activity stood at 57.0 last month, in line with economists' forecasts but a touch below November's 2-1/2-year high of 57.3. A reading above 50 indicates expansion.

Earlier data showed weekly initial claims for state unemployment benefits slipped 2,000 to a seasonally adjusted 339,000, the second weekly decline in a row, suggesting labor market conditions continue to steadily improve.

In another sign of economic improvement, financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index rose to 55.0 last month, beating November's 54.7 reading and an initial December estimate of 54.4.

"It's definitely taking a bit of a breather in looking for the new catalyst, looking for the next investment theme to unfold," said Anastasia Amoroso, Global Market Strategist with J.P. Morgan Funds in New York.

"It's a slow coming back to life and a slow start to the new year but it's also important to look past one day of data points and what we think is going to be a continuation of a cyclical expansion in the United States and elsewhere."

The S&P 500 closed out 2013 with a spectacular 29.6 percent gain for the year, its best annual performance since 1997, adding $3.75 trillion in market value. The Dow climbed 26.5 percent in its best year since 1995. The Nasdaq jumped 38.3 percent, its best year since 2009.

Other data showed U.S. construction spending increased 1 percent to an annual rate of $934.4 billion, the highest level since March 2009, as a surge in private construction projects offset a drop in public outlays.

The Dow Jones industrial average fell 88.62 points or 0.53 percent, to 16,488.04, the S&P 500 lost 10.7 points or 0.58 percent, to 1,837.66 and the Nasdaq Composite dropped 30.103 points or 0.72 percent, to 4,146.487.

Apple Inc dipped 1.3 percent to $555.59 as the biggest drag on both the S&P 500 and Nasdaq 100 indexes after Wells Fargo cut its rating on the iPad maker to "market perform" from "outperform." The S&P technology index fell 1 percent as the worst performing of the 10 major S&P sectors.

In a note to clients, Tobias Levkovich, chief U.S. equity strategist at Citigroup, boosted his year-end 2014 target for the S&P 500 to 1,975 from 1,900, citing earnings progress as the primary driver.

Volume is once again expected to be on the light side, as many market participants remain out of the office due to the New Year's holiday-interrupted week.

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