Stocks fell Thursday, weighed down by a brokerage downgrade of Starbucks Corp. (SBUX), a sharp fall in Amazon.com (AMZN) stocks and a government report showing U.S. productivity growth slowed in the fourth quarter.

The Dow Jones industrial average (search) was down 3.69 points, or 0.03 percent, at 10,593.10. The Standard & Poor's 500 Index (search) was down 3.30 points, or 0.28 percent, at 1,189.89. The Nasdaq Composite Index (search) was down 17.42 points, or 0.84 percent, at 2,057.64.

The losses, for the most part, were minimal — an encouraging sign after a difficult January — and analysts said most investors simply sat out of trading while waiting for Friday's job creation report from the Labor Department (search), a key barometer of economic activity. However, Amazon's earnings dragged tech stocks down significantly.

"Today's trading is overwhelmed by Amazon.com," said Arthur Hogan, chief market analyst at Jefferies & Co.

Amazon.com Inc. (AMZN) tumbled $6.13, or 14.64 percent, to $35.75 after the company late Wednesday reported a 26 percent jump in sales, excluding the effect of the weak dollar, but fell short of Wall Street earnings expectations by 5 cents per share.

Higher sales did not help Starbucks Corp. (SBUX) , either. The coffeehouse chain said sales at shops open at least a year rose 7 percent in January, but analysts surveyed by Thomson First Call had expected the company to post slightly higher growth. Shares of Starbucks skidded $4.43, or 8.2 percent, to $49.57.

Most major corporations have now reported fourth-quarter earnings, which means the market will be turning to economic indicators for guidance. The government's employment report will be "the biggest thing all week," Hogan said. Analysts expect around 200,000 workers were added to the rolls in January.

In economic news, the Labor Department reported that productivity, or output per worker, rose at an annual rate of just 0.8 percent in the last three months of 2004. It was the smallest quarterly increase in almost three years.

The report could indicate that companies are unable to increase their productivity as fast as they have in recent years, forcing them to hire more workers if they want to boost output.

The Institute for Supply Management (search) said its index of the service sector came in at 59.2 for January, down from 63.9 in the previous month and lower than expectations. Readings above 50 indicate growth in the sector, which comprises about two-thirds of U.S. economic activity.

"There were concerns over the productivity data while the ISM was a bit weaker than expected — so they were a catalyst today," said John Hughes, managing director at Epiphany Equity Research.

Stocks gaining included Hewlett-Packard Co. (HPQ), which rose 1.6 percent, or 33 cents to $19.90, after Lehman Brothers on Thursday raised its rating on HP to "overweight" from "equal weight." Lehman said HP's new organizational structure would improve the likelihood of consistent financial results.

Wall Street's latest merger trend continued as MCI Corp. (MCI) rose 47 cents to $20.15 after media reports said Qwest Communications Corp. (Q)could bid for the telecom company, formerly MCI WorldCom. Verizon Communications Inc. is also said to be considering a bid for MCI. Qwest climbed 21 cents to $4.41, while Verizon edged 2 cents higher to $35.90.

Raytheon Co. (RTN) rose 54 cents to $38.34 after it reported fourth quarter-earnings up 20 percent due to a boost in military spending. The results beat Wall Street's expectations by 8 cents a share.

Closeout retail chain Big Lots Inc. (BLI) said January sales rose 9.2 percent from last year. Its stock rose 50 cents to $12.59.

Mercury Interactive Corp. (MERQ) rose 10.7 percent, or $4.74 to $48.94 after Wachovia Securities raised its rating to "outperform" from "market perform" after the U.S.-Israeli software maker reported a strong fourth-quarter.

Used-car chain CarMax Inc. (KMX) jumped $3.84, or 13 percent, to $33.37 after strong sales led to a quarterly profit forecast well above Wall Street's targets.

Trading was active, with 1.5 billion shares changing hands on the New York Stock Exchange, above the 1.46 billion daily average for last year. About 1.9 billion shares were traded on Nasdaq, above the 1.81 billion daily average last year.

Decliners outnumbered advancers on the New York Stock Exchange by about 6 to 5 and by 3 to 2 on Nasdaq.

The Russell 2000 index of smaller companies was down 2.66, or 0.42 percent, at 629.32.

Overseas, Japan's Nikkei stock average fell 0.16 percent. In Europe, Britain's FTSE 100 closed down 0.16 percent, France's CAC-40 was down 0.58 percent for the session, and Germany's DAX index was down 0.34 percent in late trading.

Reuters and the Associated Press contributed to this report.