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US STOCKS-S&P 500, Dow dip as labor market recovery slows

(For a Reuters live blog on U.S., UK and European stock markets, click LIVE/ or type LIVE/ in a news window.)

* U.S. weekly jobless claims unexpectedly rise

* Financials lead declines among S&P indexes

* Tesla down after hitting $500 billion in market cap

* Indexes: Dow off 0.49%, S&P down 0.27%, Nasdaq up 0.11% (Updates to open)

Nov 25 (Reuters) - The S&P 500 and the Dow retreated on Wednesday as a surprise rise in weekly jobless claims added to signs the recovery of the labor market was stalling amid a surge in COVID-19 infections.

The Labor Department’s report showed initial claims for state unemployment benefits last week increased to 778,000 from 748,000 in the prior week. Economists polled by Reuters had forecast 730,000 applications.

With the next fiscal stimulus package now expected only after President-elect Joe Biden is sworn in on Jan. 20, momentum in the labor market is expected to remain slow.

“The question is who wins the battle - the vaccines or the rising cases in the short term,” said Christopher Grisanti, chief equity strategist at MAI Capital Management in Ohio.

“For the last several weeks, the market has been looking through bad news, but then you get the statistic about the unemployment claim and the market focuses again on the short term difficulties we are having.”

Data also showed U.S. consumer spending, which accounts for more than two-thirds of domestic economic activity, increased solidly in October, but personal income fell.

At 10:20 a.m. ET, the Dow Jones Industrial Average was down, or 0.49%, at 29,900 after closing above 30,000 for the first time on Tuesday.

The S&P 500 was down 0.27%, while the Nasdaq Composite was up 0.11%.

Six of the 11 S&P indexes were lower, with the energy and financial sectors leading declines, while technology mega-caps were among the biggest gainers in early trading.

Trading volumes were expected to be thin ahead of the Thanksgiving holiday on Thursday.

Major U.S. banks JPMorgan Chase & Co and Goldman Sachs Group, among the most economically-sensitive, were down 1.9% and 1.5%, respectively.

Hopes of a COVID-19 vaccine following promising trial data from three major drugmakers as well as a smooth White House transition have lifted Wall Street’s main indexes to record highs and set the benchmark S&P 500 on course for its best November ever.

Market participants said they expected U.S. stocks to climb even higher, with a recent Reuters poll showing the S&P 500 is poised to rise 9% between now and the end of 2021. The index has surged about 66% since the coronavirus-led crash in March and is up about 12% so far this year.

Tesla Inc, which crossed $500 billion in market capitalization on Tuesday, dropped 1.1% as the electric-car maker recalled about 9,500 vehicles.

Declining issues outnumbered advancers 1.85-to-1 on the NYSE and 1.67-to-1 on the Nasdaq.

The S&P index recorded 11 new 52-week highs and no new low, while the Nasdaq recorded 59 new highs and four new lows. (Reporting by Shriya Ramakrishnan in Bengaluru; Editing by Arun Koyyur)