updated 10/8/2010 7:39:53 AM ET 2010-10-08T11:39:53

Stocks ended mixed Thursday as traders balanced slightly better news on weekly unemployment claims against uncertainty about an upcoming monthly jobs report. The Dow Jones industrial average came within two points of 11,000 before turning lower.

The Labor Department said first-time claims for unemployment insurance fell last week, a better result than analysts were expecting. Retailers including Macy's Inc., Abercrombie & Fitch and Limited Brands Inc. reported better-than-expected monthly sales, which initially provided a lift to the market.

Story: Jobless claims fall to lowest level in 3 months
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The retail sales were positive, but "there's not enough to move the needle given that we've got the big jobs report tomorrow," said Hank Smith, chief investment officer at Haverford Investments.

Many traders were holding back ahead of the release Friday of the government's closely watched monthly employment report, which is the most important event on the economic calendar and very often determines which way stocks and bonds will trade. Economists expect the unemployment rate climbed to 9.7 percent last month from 9.6 percent in August.

Ed Crotty, chief investor officer at Davidson Investment Advisors, said there is a wide range of expectations for how Friday's jobs report might turn out. He said even upbeat results might not be enough to drive stocks significantly higher.

"If the number is good, there will be skepticism it's not sustainable," Crotty said.

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Claims for unemployment insurance have been falling steadily in recent weeks, but still indicate that employers aren't ramping up hiring. Payroll company ADP said Wednesday that private employers slashed jobs in September for the first time in seven months.

High unemployment remains a main obstacle to stronger economic growth. Worries about jobs had been keeping a lid on spending in recent months, though retailers reported Thursday that sales improved modestly in September.

According to preliminary calculations, the Dow fell 19.07, or 0.17 percent, to 10,948.58 in afternoon trading, after having been up as much as 31 points shortly after the open. The Dow hasn't traded above 11,000 since May 4, shortly before the "flash crash" that sent indexes on a harrowing but brief plunge.

The Standard & Poor's 500 index fell 1.91, or 0.16 percent, to 1,158.06, while the Nasdaq composite rose 3.01, or 0.13 percent, to 2,383.67.

Earnings season also kicked off with mixed results from PepsiCo Inc. The drink and snack maker said its third-quarter profit jumped in part on revenue gains following its acquisition of its two largest bottlers earlier this year. Earnings matched expectations, but the company narrowed its earnings outlook to a level below analysts' forecasts.

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Alcoa Inc. will be the first component of the Dow Jones industrial average to report earnings when it releases results after the market closes.

PepsiCo and Alcoa provide a glimpse into how companies were able to deal with slowing economic growth over the summer and provide insight into where corporate executives believe the economy is headed. Analysts have said earnings outlooks and revenue growth will be vital to propelling stocks higher in the next few weeks as hundreds of companies report results.

Stocks are coming off a historically strong performances in September, and analysts say the market will need significant doses of positive news on the economy, corporate earnings or preferably both before heading decisively higher again. The Dow Jones industrial average gained 10.4 percent in September, but is still 2.1 percent below its 2010 high reached on April 26.

PepsiCo fell $2.23, or 3.3 percent, to $65.88. Limited Brands shares rose $1.06, or 3.8 percent, to $28.65, while Abercrombie & Fitch jumped $3.88, or 10.1 percent, to $42.47. Macy's fell 24 cents to $23.46 after rising earlier in the day.

Bond yields remained near their lowest levels since January 2009 as traders expect the Federal Reserve to step up its purchases of Treasurys in order lower interest rates and encourage borrowing.

Cliff Draughn, president and chief investment officer at Excelsia Investment Advisors, said the Fed could act as early as its next meeting that wraps up Nov. 3. The timing of the Fed re-entering the Treasury market hinges on how the investors react to election results Nov 2.

The yield on the 10-year Treasury note, which moves opposite its price, was unchanged at 2.39 percent compared with late Wednesday. Its yield helps set interest rates on a variety of loans including mortgages.

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Mortgage buyer Freddie Mac said rates on traditional 30-year fixed-rate mortgages reached their lowest level on records dating back to 1971.

The dollar continued to fall against other major currencies as traders expect U.S. interest rates to fall further. Currencies with higher interest rates become more attractive to foreign exchange traders when U.S. rates fall.

Gold, which is considered a safe alternative to the dollar, hit another record of $1,366.00 an ounce early Thursday before pulling back to $1,335.00 an ounce.

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