Stocks pulled back Thursday after economic data pointing to weakness in regional manufacturing and a slowing U.S. economy weighed on investor sentiment in light trading ahead of the holiday weekend.

Stocks fell after the Philadelphia Federal Reserve's December business index, which gauges regional manufacturing activity, came in at a negative 4.3 compared with a positive reading of 5.1 in November. It was the weakest showing since 2003.

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Before release of the Philadelphia Fed report, investors shrugged off news that the economy grew at a slower pace in the third quarter than had been estimated. Gross domestic product fell to 2 percent in the third quarter amid a cooling real estate market; the Commerce Department estimated a month ago that the reading would be closer to 2.2 percent.

"I think with the low volume nobody is really around to trade the stuff," said Ryan Larson, senior equity trader at Voyageur Asset Management, a unit of RBC Dain Rauscher. "So I wouldn't put too much credence in this pullback."

The Dow Jones industrial average fell 42.62, or 0.34 percent, to 12,421.25.

Broader stock indicators also lost ground. The Standard & Poor's 500 index slipped 5.22, or 0.37 percent, to 1,418.31, and the Nasdaq composite index lost 11.76, or 0.48 percent, falling to 2,415.85.

Bonds rose sharply on the weaker economic data, with the yield on the benchmark 10-year Treasury note falling to 4.55 percent from 4.60 percent late Wednesday. The dollar was lower against other major currencies, while gold prices fell.

Light, sweet crude oil fell $1.06 to $62.66 per barrel on the New York Mercantile Exchange.

Comments from Richmond Federal Reserve President Jeffrey M. Lacker, who has long warned of the threat of inflation to the economy, further dented sentiment Thursday. According to prepared remarks of a speech in Charlotte, N.C., Lacker said: "The risk that core inflation surges again, or does not subside as desired, clearly remains the predominant macroeconomic policy risk."

Larson noted that the comments weren't surprising as Lacker has dissented in the central bank's recent decisions to leave short-term interest rates unchanged.

The Fed left rates unchanged at its last four meetings after raising rates 17 straight times since 2004 in an attempt to cool the economy and curb inflation. Wall Street has been waiting to see whether the central bank can steer the economy toward a soft landing or whether growth will slow too quickly and push the economy into recession.

Though drawing less attention than other economic data out Thursday, a gauge of future economic activity advanced 0.1 percent in November, suggesting the U.S. economy will expand modestly in coming months. The report from the Conference Board, an industry-backed research group, found its Index of Leading Economic Indicators edged up to 138.2 last month following a revised increase of 0.1 percent to 138.1 in October.

Profit reports from drugstore chain Rite Aid Corp. (RAD) and packaged-food maker ConAgra Foods Inc. (CAG) offered some support Thursday, underscoring a notion that companies will still squeeze out growth amid a slowing economy.

Rite Aid rose 10 cents to $5.47 after reporting a narrower fiscal third-quarter loss amid stronger pharmacy sales and increased prescription volume. The company reiterated its profit forecast.

ConAgra rose 49 cents to $27.34 after its fiscal second-quarter profit rose 44 percent. The company, whose brands include Healthy Choice, raised its forecast for the year.

Horizon Health Corp. rose $3.23, or 20 percent, to $19.36 after the company, which operates mental health treatment facilities, agreed to be acquired by Psychiatric Solutions Inc. for $321 million plus the assumption of $105 million in debt. Psychiatric Solutions rose $1.52, or 4.2 percent, to $37.60.

Jabil Circuit Inc. fell $2.44, or 9.2 percent, to $24.12 after the company's fiscal first-quarter results disappointed Wall Street despite a 34 percent increase in revenue.

PMC-Sierra Inc., which makes chips used in communications and networking equipment, fell 29 cents, or 4.2 percent, to $6.60, after cutting its fourth-quarter profit forecast.

Financial-services company International Assets Holding Corp. fell $15.63, or 32.6 percent, to $32.30 after it swung to a fiscal fourth-quarter loss amid volatility in commodity prices.

The Russell 2000 index of smaller companies fell 2.66, or 0.34 percent, to 782.90.

Declining issues outnumbered advancers by about 3 to 2 on the New York Stock Exchange, where volume came to 1.35 billion shares, compared with 1.37 billion traded Wednesday.

Overseas, Japan's Nikkei stock average closed up 0.22 percent. Britain's FTSE 100 closed down 0.24 percent, Germany's DAX index was down 0.20 percent, and France's CAC-40 was down 0.07 percent.

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