NEW YORK (CNN/Money) - U.S. stocks fell Thursday, hit by some late-session profit taking that erased an early rally inspired by the day's positive earnings reports and a surprising dip in jobless claims last week.

After the close of trade, the earnings parade continued. Priceline.com (PCLN: up $0.63 to $25.24, Research, Estimates) reported earnings of 20 cents a share, up from 16 cents a year ago and 6 cents better than expected. Priceline also raised its forecast for the current quarter, sending its shares up more than 12 percent after hours. On the downside, Nortel Networks (NT: up $0.08 to $3.05, Research, Estimates) reported earnings that were flat on a per-share basis, in line with estimates and up from a loss of 20 cents a year earlier, sending its shares down 3 percent after hours.

By late Friday, roughly two-thirds of the S&P 500 will have reported second-quarter earnings. While more than two-thirds have been better than expected, investors have taken a cautious approach after Wall Street's four-month rally.

"Definitely, there is a turning around of the ship here. Earnings are improving and investors are starting to respond to that," said Ram Kolluri, chief investment officer at GlobalValue Investors.

"But a lot of people are still afraid that this is a rally in a bear market and that it can't last, so there's some caution," he added. "I think you're going to continue to see a period of digesting the earnings."

Friday is the week's lightest earnings day. The biggest company due to report is Pfizer (PFE: down $0.38 to $32.55, Research, Estimates), which is expected to have earned 29 cents a share, down from 33 cents a year earlier. Energy trader Dynegy (DYN: down $0.17 to $3.65, Research, Estimates), financial T. Rowe Price (TROW: up $0.05 to $39.45, Research, Estimates) and biotech Andrx (ADRX: up $0.14 to $19.36, Research, Estimates) are also due before the bell.

Also due before the bell: durable goods orders for June, forecast to have risen 1.2 percent after showing a decline of 0.4 percent in May, according to a consensus of economists surveyed by Briefing.com.

Once trading begins, investors will get reports on new and existing home sales for June. New sales are expected to have fallen to an annual unit rate of 1.111 million, down from 1.157 million in May. Existing sales are forecast to have risen to a 6.0 million annual unit rate from 5.92 million in May.

The Nasdaq composite (down 17.76 to 1701.42, Charts) lost 1 percent, the Dow Jones industrial average (down 81.73 to 9112.51, Charts) lost 0.9 percent and the Standard & Poor's 500 (down 7.01 to 981.60, Charts) index lost 0.7 percent. All three indexes had traded higher throughout the session on Nasdaq leadership.

Encouraging results from companies such as Dow member AT&T and a significant drop in the number of Americans filing new claims for unemployment sent stocks on a tear in the morning, but the indexes abruptly sold off 90 minutes before trading closed and were never able to recover their momentum.

The selloff was attributed to talk that an automated sell program had kicked in at one of the major brokerage houses, as well as rumors that a plane flew directly over President Bush's motorcade in Philadelphia and that U.S. Secretary of Homeland Security Tom Ridge might raise the terror alert level this evening.

"When you see this kind of quick move, that's a mechanical sell program from one of the brokerages," said Larry Wachtel, market analyst at Prudential Financial.

"You've also got the market rallying since March 11, and so you're going to see these kinds of pullbacks," he added. "For the Dow to move a couple of hundred points in a day isn't so unusual."

The market had been expected to open flat and give the mixed performance of the past few days after Wednesday night's and Thursday morning's equally mixed group of corporate bottom-line reports. The release of an unexpectedly sharp drop in the weekly jobless claims number turned things around in the morning and early afternoon, before the late-session selling kicked in.

One positive for investor optimism was the morning's economic report.

The number of Americans filing new claims for unemployment benefits fell below the 400,000 mark - considered a barometer of the health of the labor market - for the first time in more than five months. The number fell to 386,000 last week, from a revised 415,000 in the preceding week, well below what economists had been expecting.

While other segments of the economy have shown tentative signs of improvement throughout the first half of the year, the labor market has been a laggard, which is often the case in an economic recovery. The news of the drop in unemployment claims was certainly encouraging, but analysts cautioned that seasonal volatility could have played a bigger role in the change than an actual pickup in hiring.

On the earnings front, shares of AT&T (T: up $0.47 to $20.00, Research, Estimates) gained 2.4 percent after it reported better-than-expected quarterly earnings on revenue that declined. The company also said it was raising its dividend and would buy back some of its debt.

Fellow Dow telecom SBC Communications (SBC: down $0.67 to $23.30, Research, Estimates) reported lower second-quarter earnings and revenue, due to weak demand and increased competition. However, the results were in line with expectations. The stock lost 2.8 percent.

The third Dow company to report was International Paper (IP: down $0.71 to $37.87, Research, Estimates), which posted weaker second-quarter earnings that nonetheless topped estimates, and issued a discouraging outlook. Its stock fell 1.8 percent.

AT&T Wireless (AWE: up $0.73 to $8.53, Research, Estimates) shares rallied 9.4 percent in active NYSE trade after the company reported improved earnings and better-than-expected subscriber growth late Wednesday. On Thursday, Merrill Lynch upgraded the stock to "buy" from "neutral."

On the downside, EDS (EDS: down $2.15 to $20.80, Research, Estimates) tumbled 9.4 percent after the company said its second-quarter profit fell 56 percent.

Both Elan (ELN: down $1.99 to $4.47, Research, Estimates) and Biogen (BGEN: down $2.48 to $38.70, Research, Estimates) shares fell after the companies announced that their treatment for Crohn's disease failed to meet expectations in a late-stage trial. Elan fell 30.8 percent in active NYSE trade, while Biogen shares fell almost 6 percent on the Nasdaq.

Hewlett-Packard (HPQ: down $1.03 to $21.10, Research, Estimates) lost 4.7 percent, Intel (INTC: down $0.84 to $23.97, Research, Estimates) lost 3.4 percent and Eastman Kodak (EK: down $0.60 to $26.26, Research, Estimates) lost 2.2 percent, adding to the Dow's declines.

Market breadth was narrowly negative, with decliners just barely topping advancers on the New York Stock Exchange and NYSE. NYSE volume climbed to 1.54 billion shares and some 1.87 billion shares traded on the Nasdaq.

The jobless claims number and the signs of economic recovery it implied led to a drop in Treasury prices, sending the 10-year note yield up to 4.16 percent from 4.10 percent late Wednesday. The dollar rose after the release of the jobless claims report.

NYMEX light sweet crude oil futures added 55 cents to $30.22 a barrel. COMEX gold added $3.60 to settle at $362.30 an ounce.