NEW YORK (CNNfn) - Unnerved investors lacked conviction, opting to sit on the sidelines Thursday, as the Nasdaq composite index set a record for the slowest trading day of 2000, amid rising anxiety about the April employment report and what the Federal Reserve will do with interest rates.
Financial and retail issues pressured the Dow Jones industrial average for its third straight session, but selling was somewhat countered by strength in American Express, Boeing and Exxon Mobil. Nasdaq trading was choppy as discerning buyers picked up some bargains.
"I think it's just the first taste of the (economic) data," said John Manley, investment strategist at Salomon Smith Barney. "The demand for technology still seems to be there but (inflation concerns) mean the market will bounce all over the place."
 The Nasdaq reversed two sessions of declines, gaining 12.93 points to 3,720.24. The index is still up 16 percent from its low of 3,227 on April 17. But the composite is 26 percent off from its March 10 high - a bear market by Wall Street's definition.
"A lot of big players are sidelined ahead of the employment numbers on Friday," said Bill Meehan, chief market analyst at Cantor Fitzgerald. "The volatility in Nasdaq is that there just isn't a lot of liquidity, so it doesn't take a lot of money to move it substantially."
 The Dow declined by nearly 1 percent, skidding 67.64 points to 10,412.49. The broader S&P 500 lost 5.72 to 1,409.38.
While market breadth was modestly positive, volumes were light. Advancers beat decliners on the New York Stock Exchange 1,614 to 1,285, as more than 914 million shares changed hands. Winners topped losers on the Nasdaq 2,193 to 1,785, on volume of more than 1.2 billion shares.
In currency markets, the dollar strengthened against the euro but slipped versus the yen. Treasury securities rose.
Economic data fuels inflation concern
Evidence of economic strength left most investors taking a break from actively buying or selling, said analysts. Rather, investors were wary ahead of Friday's April employment report, a key economic indicator that is expected to fuel inflationary woes.
"There is a fear that we'll have a negative surprise and inflationary fears are keeping people on the sidelines," said Barry Hyman, chief market strategist at Ehrenkrantz King Nussbaum Inc. "There's no real great impetus out there to drive the market."
The Federal Reserve's policy-making body meets May 16, and it's widely expected that a rate increase of a quarter point or half point will be implemented -- although Fed chairman Alan Greenspan gave no hint during a morning speech in Chicago about what action will be taken.
"The productivity numbers today (Thursday) and tomorrow's (Friday's) report do nothing to support a bullish market," said Hyman. "I would be concerned if we saw the unemployment drop below 4 percent because that would show the economy is not slowing down."
In an economic report issued Thursday, U.S. worker productivity rose at a smaller-than-expected rate in the first three months of the year, while wage costs showed surprising strength, the government said Thursday.
Productivity, a measure of output, rose at an annual rate of 2.4 percent, the Labor Department said. That's lower than the 3.5 percent gain expected by analysts surveyed by Briefing.com, and the upwardly revised 6.9 percent gain in the fourth quarter.
Meanwhile, labor costs jumped 1.8 percent, well above the 1.0 percent jump that Wall Street expected and compared with the revised 2.9 percent decline in the fourth quarter.
The number of Americans filing new claims for unemployment benefits rose to 303,000 for the week ended April 29 from 283,000 the prior week, the U.S. Department of Labor said Thursday. A weekly reading below 300,000 indicates a tight labor market.
But Art Hogan, chief market analyst at Jefferies & Co., told CNN's In the Money that once the Fed rate action is taken, the equity markets are poised for an advance. (399K WAV) (399K AIFF)
Finicky investors
Analysts said investors were more interested in snatching up bargains within sectors, rather than buying or selling whole groups.
 Financial issues mostly were sold off. J.P. Morgan (JPM: Research, Estimates) slid 2-7/8 to 122, and Citgroup (C: Research, Estimates) dropped 1-3/8 to 58-3/4.
But other Dow issues helped keep the blue chip index from sinking more dramatically. American Express (AXP: Research, Estimates) jumped 2-3/4 to 144-3/4, Boeing (BA: Research, Estimates) rose 7/8 to 38-3/16, and Exxon Mobil (XOM: Research, Estimates) gained 2 to 79-1/2.
Technology was still attracting light buying interest. Intuit (INTU: Research, Estimates) jumped 1-7/16 to 33-1/2, MCI Worldcom (WCOM: Research, Estimates) gained 1-7/16 to 43-13/16, and Yahoo! (YHOO: Research, Estimates) rose 2-1/8 to 124-3/16.
Selective buying wasn't enough to give the Nasdaq a momentous rise as some tech leaders were sold off. Cisco Systems (CSCO: Research, Estimates) fell 2-7/16 to 63-5/8, Oracle (ORCL: Research, Estimates) slipped 1-7/16 to 74-3/8, and Dell (DELL: Research, Estimates) shed 2-1/16 to 47-1/4.
Walt Disney (DIS: Research, Estimates) fell 1-1/2 to 39-3/4, despite reporting a better-than-expected fiscal second-quarter profit of 18 cents a share with the help of ABC television and its blockbuster game show "Who Wants To Be a Millionaire." The results beat analyst expectations of 14 cents a share and also beat the 13 cents a share earned in the year-earlier period.
"The moves in media stocks are never earnings based," said Hyman. Disney's stock had climbed as high as 43-7/8 in advance of the earnings report -- an 88 percent increase from its 52-week low in November. 
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