Blue chips were buoyed Thursday by a surprise interest-rate cut by the European Central Bank and strong retail sales data from last month.

But technology stocks slipped, erasing early gains made on the back of upbeat comments by Morgan Stanley on semiconductor equipment makers.

Market watchers said investors remain hesitant to buy, despite predictions on Wall Street that an economic recovery will begin by year's end.

``The broad market has a lot of potential, but it's hard to make a strong argument for the technology sector,'' said Edgar Peters, chief investment officer at PanAgora Asset Management Inc, which manages $15 billion.

``There is also still is a sell-on-the-rally mentality and probably will be until we get the Fed meeting out of the way next week,'' he said. ``People are still waiting to see if it gives us a 50-basis-point cut next week.''

The technology-heavy Nasdaq Composite Index gave up 27.77 points to close at  2,128.86 after spending most of the morning in positive territory. The blue-chip Dow Jones industrial average gained 43.46 points at 10,910.44, also off its highs, and the broader Standard & Poor's 500 Index 0.36 to 1,255.18.

On Wednesday, the Nasdaq fell 42.27 points, the Dow slid 21.8 points and the S&P lost 6.05 points.

Sentiment got a bit of a boost from a shock interest-rate cut out of the European Central Bank and a report that the number of Americans lining up for first-time unemployment benefits last week fell sharply to a level not seen in more than a month. 

But many were treading cautiously ahead of crucial data due out on Friday that could shed more light on the Fed's next move at is policy-setting meeting on May 15. Wall Street widely expects the central bank will slash interest rates for a fifth time this year by half a percentage point to spark an economic turnaround.

Retailers were carrying the day after many of the companies reported surprisingly strong April sales.

Retailer Wal-Mart Stores Inc. rose $1.71 to $53.30 on a 6.5 percent April gain in sales. Home Depot, another of the Dow components, was up 96 cents at $49.47.

Gap Inc. surged $3.15, or 11 percent, to $31.95 after the apparel chain forecast that its earnings would surpass analysts' estimates and it reported a 19 percent jump in April sales. 

The S&P retail index climbed more than 2.78 percent.

Global Crossing Ltd. added 76 cents to $14.56. Late on Wednesday, the company said its quarterly loss almost doubled, but still topped expectations as the high cost of building its undersea and land-based communications networks offset surging sales of data services. 

In the technology arena, Morgan Stanley raised the investment rating of six big makers of equipment used in the production of semiconductors to strong buy from outperform, saying their stocks had hit bottom. Among the group, Applied Materials rose 86 cents to $51.90 and KLA-Tencor Corp. was up $1.83 at $51.36. 

In economic moves, the European Central Bank announced an unexpected cut in interest rates. The ECB, which has said in recent weeks it had no intention of reducing rates, lowered by 25 basis points. 

``The most noteworthy factor is the surprise rate cut by the ECB and also the Bank of England,'' said Henry Herrmann, chief investment officer of fund company Waddell & Reed, which manages $4 billion. 

``There was a concern that now Europe was starting to slow down a lot also,'' Herrmann said. ``So the central bank cutting rates there gave some people some confidence that things might not get totally ugly.'' 

As for the jobs data, the U.S. Labor Department said in the week of May 5 initial jobless claims fell by 41,000 to 384,000, the lowest level since a matching 384,000 claims in the March 31 week. 

Claims in the prior week were reported at a revised 425,000. Economists polled by Reuters expected initial jobless claims to edge down to 417,000.

Advancing issues led decliners more than 3 to 2 on the New York Stock Exchange. Consolidated volume was 1.25 billion, compared with 1.37 billion Wednesday.

The Russell 2000 index was up 0.40 at 490.58. 

Overseas, Japan's Nikkei stock average slipped 0.5 percent. European stocks fared better, boosted by the surprise interest rate cut there. Germany's DAX index was up 1.7 percent, Britain's FT-SE 100 was up 1.2 percent, and France's CAC-40 rose 2.1 percent.