U.S. stocks surrendered early gains to trade in negative territory on Thursday as crude oil pivoted south.
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Investors were taking a wait-and-see attitude ahead of the crucial jobs report Friday.
Oil futures were off nearly 5% after a report from the U.S. Energy Information Administration showed a smaller-than-expected weekly drop in domestic crude supplies of 2.2 million barrels.
The S&P 500 index was down 6 points to 2,093. Sharp declines in so-called defensive groups, telecommunications and utilities, were weighing on the broad-market benchmark.
The Dow Jones Industrial Average slid 64 points, or 0.4%, to 17,855. Chevron Corp.(CVX) and Verizon Communications Inc.(VZ) were notable losers.
The Nasdaq Composite Index , which had been holding its gains, was wavering in midday trade, most recently trading little-changed at 4,861.
"Some of the fear trades had dissipated and investors are waiting for the jobs report which has taken on almost a mythical tone given last month's poor data," said Mike Antonelli, equity sales trader at Robert W. Baird & Co.
Economists surveyed by MarketWatch are projecting U.S. companies to have added 170,000 jobs last month. The June employment report is viewed as a key gauge of the health of the economy after last month's report showed that the U.S. created just 38,000 jobs in May--representing the slowest pace of growth in five years.
Earlier, risk appetite got a boost from a duo of stronger-than-expected reports on the labor market, along with gains in crude-oil prices following a drop in crude stockpiles.
Investors were reluctant to place any big bets ahead of Friday's jobs report, after a strong report on nonmanufacturing activity and dovish Federal Reserve minutes helped nudge investors back into equities on Wednesday for the first session.
The market is waiting for "a sign that the U.S. economy is not on the edge of the abyss," said Kent Engelke, chief economic strategist at Capitol Securities Management.
Private-sector employment picked up a bit in June, suggesting the weak May nonfarm-payroll report may be an anomaly, Automatic Data Processing Inc. reported Thursday. And initial jobless claims fell last week to a nearly three-month low, showing no evidence of rising layoffs.
The ADP report suggested the U.S. economy "is moving in the right direction," J.J. Kinahan, chief strategist at TD Ameritrade, said, but it will take more than just one good report for the Federal Reserve to consider raising interest rates.
Analysts use ADP's data to get a feeling for the Labor Department's official jobs report, which will be released Friday and covers government jobs in addition to the private sector.
"The Brexit vote alone is likely to deter [the Fed] from raising rates until at least the end of the year as they wait to see what the knock-on effects will be, both from an economic and financial markets perspective," Craig Erlam, senior market analyst at Oanda, said in a note.
A strong headline number and signs of rising wage inflation could be a sufficient signal for the market to switch from its current risk-off mode, in which investors have been piling into government bonds, pushing Treasury yields to all-time lows earlier this week, Engelke added.
Meanwhile, investors were monitoring the testimony of FBI Director James Comey before a House committee on Hillary Clinton's use of personal email.
Central bank news:Minutes from the European Central Bank's June meeting, showed that policy makers warned that a U.K. vote to leave the EU could have significant negative repercussions for eurozone growth. The ECB meeting predated the U.K.'s historic referendum.
No Federal Reserve members are scheduled to speak publicly today.
Movers and shakers: PepsiCo Inc. (PEP) rose 1.9% after reporting better-than-expected earnings for its second quarter.
Shares of WhiteWave Foods Co.(WWAV) rallied 19% after French dairy giant Danone SA (DANOY) said it plans on buying the organic-foods producer for about $10 billion.
Western Digital Corp.(WDC) rose 4.5% after the maker of computer disk drives late Wednesday raised its quarterly earnings outlook.
Shares of SemiLEDS Corp.(LEDS) soared 187% after the LED chips maker late Wednesday said Peter Chiou will buy 577,000 shares of the company's common stock at $5.00 per share. SemiLEDS shares closed at $3.30 on Wednesday.
PriceSmart Inc.(PSMT) and WD-40 Co.(WDFC) will release earnings after the market closes.
Other markets: Asian markets ended mostly higher following Wednesday's higher close on Wall Street. However, Japan's Nikkei 225 index ended down 0.7% as the yen remained stubbornly high.
European markets rose across the board, taking a breather after three days of Brexit-related losses.
Gold dropped, while the dollar gained against most other major currencies.
--Sara Sjolin contributed to this article.
By Sue Chang and Ellie Ismailidou, MarketWatch