Stock indexes slipped Thursday, pausing for breath after two days of strong gains that drove the Dow above 10,000 and the Nasdaq above 2,000 for the first time in months.

Technology shares held small gains while some Wall Street watchers worried over the market's high valuation after a powerful run-up on hopes the economy will pull out of recession next year.

The blue-chip Dow Jones industrial average droped 15.15 points, or 0.15 percent, to end at 10,099.14, while the technology-packed Nasdaq Composite Index gained 7.43 points, or 0.36 percent, to 2,054.27. The broader Standard & Poor's 500 Index dropped 3.25 points, or 0.28 percent, at 1,167.10.

"We have come a long way, and it's mostly on hope,'' said John Davidson, president and chief executive at PartnerRe Asset Management, which oversees $4 billion. ``There is an awful lot of optimism in the market, and it's conditional on reemerging strength in the economy. The market has certainly gotten ahead of the economics.''

Marquee names like Cisco Systems Inc. propped up the technology sector, and JP Morgan Chase & Co. buoyed brokerages. Retailers fell after lackluster sales at some stores and oil stocks slipped on weaker crude oil prices. U.S. Treasuries sank for a second straight day as hopes built for a swift recovery next year.

Wall Street was on watch for news from chip leader Intel Corp. after the bell. Intel raised its quarterly sales outlook, further boosting hopes for the tech sector. Intel slipped 45 cents to $34.16 in the regular session, but gained about $1 to $35.17 after the close.

The market has rebounded sharply since hitting three-year lows on Sept. 21, fueled by growing hopes for a quick economic recovery. Wednesday's rally pushed the Dow above 10,000 for the first time in three months and the Nasdaq above 2,000 for the first time in four months. 

"We have a lot of pieces coming together and the stars have aligned in the right direction for the time being,'' said Ned Riley, chief investment strategist at State Street Global Advisors. "Finally, people are recognizing that there is fundamental change taking place.'' 

Concerns have surfaced that stocks are rallying too hard, too fast. The price-to-earnings ratio — a key valuation gauge —  for the S&P 500 now stands at 22 based on 2002 earnings, according to research firm Thomson Financial/First Call. That compared to a ratio of 24.7 when the S&P 500 peaked in March 2000. The historical average is 15. 

"Now we are getting into fair-valued or possibly overvalued territory,'' said Philip Ferguson, senior investment officer at AIM Capital Management, which oversees $141 billion. "The price-to-earnings ratio is as high now as when this downturn started a year ago, because earnings have come way down and we have had an enormous spike since Sept. 21.''

Wall Street was largely unfazed by economic reports showing U.S. worker productivity grew at a weaker-than-expected pace in the third quarter and bigger-than-expected weekly jobless claims.

Weekly jobless claims fell to a seasonally adjusted 475,000 in the week ended Dec. 1 vs. a revised 493,000 in the prior week. But the report still pointed to a weak labor market.

"The market is actually accepting bad news in a much more orderly and amenable way," said Ned Riley, chief investment strategist at State Street Global Advisors.

On an upbeat note, U.S. orders for manufactured goods rose sharply in October, boosted by demand for computers and military plans. New factory orders rose by 7.1 percent, posting their biggest gain since June 2000 and surpassing expectations for a 6.3 percent rise.

Retailers were slammed as recession fears, deep discounting and warm weather weighed down sales of clothing and other nonessential items. Wal-Mart Stores Inc., the world's largest retailer, fell 95 cents to $55.62 after its sales rose only 4.3 percent, which was at the low end of its projected range. 

Disappointing same-store sales also hit Best Buy Co. even though the No. 1 consumer electronics chain said its profits would be at the higher end of Wall Street forecasts. Best Buy fell $3.83 to $69.48. 

Circuit City Stores Inc., on the other hand, jumped $1.86 to $20.55 after posting a smaller-than-expected drop in sales. 

JP Morgan, up $1.36 at $40.38, helped support the blue-chip Dow after Bear Stearns called the stock ``one of the most attractive valuation stories in the (brokerage) group.'' The American Stock Exchange broker dealer index jumped 2.30 percent. 

The latest merger news caught investors' attention after biotechnology company Millennium Pharmaceuticals Inc. said it plans to buy COR Therapeutics Inc. in a $2 billion stock swap. Millennium dropped $5.89 to $29.56 and COR surged $8.46 to $28.20. 

Medtronic Inc., the world's largest medical device maker, agreed to acquire VidaMed Inc. for $326 million in a deal that would expand Medtronic's urological business. Medtronic rose 22 cents to $48.42, and VidaMed gained $2.08 to $7.75.

Winners barely edged past losers on the New York Stock Exchange, while advancers beat out decliners by a ratio of 4 to 3. More than 1.46 billion shares changed hands on the Big Board, and more than 2.15 billion on Nasdaq.

The Russell 2000 index gained 2.80 to 482.22. 

Overseas, Japan's Nikkei stock average rose 1.3 percent. In Europe, Germany's DAX index climbed nearly 0.2 percent, Britain's FT-SE 100 advanced 0.7 percent, and France's CAC-40 was almost unchanged.

Reuters and the Associated Press contributed to this report.