Stocks put on a lukewarm performance Thursday as mixed retail sales reports and lingering worries about the shape of the economy dragged down Wall Street's mood. Still, the major indexes managed to limit early losses.

The Dow Jones industrial average gained 5.06 points to close at 10,298.56, after an early swoon, while the Nasdaq composite index dropped 3.04 points to 1,963.32, posting its fifth straight session of losses and ending just four points shy of a four-month closing low.

The Standard & Poor's 500 index fell just 0.10 of a point, or 0.01 percent, to 1,183.43.

Trading was moderate, but picked up a bit of steam by late afternoon, with 1.1 billion shares traded on the New York Stock Exchange and 1.5 billion on the Nasdaq.

``The weak economic data and the lousy earnings season we went through have pushed hopes for recovery out further,'' said Erik Gustafson, a portfolio manager who helps oversee $4 billion for Stein Roe & Farnham Inc. ``Today's action shows a market still churning to the downside.

The economic outlook was no less grim, with jobless claims rising to 385,000 in the week ended Aug. 4 from a revised 352,000 for the prior week. The news came on the heels of Wednesday's "beige book," the Federal Reserve's anecdotal survey of national economic conditions, which said the economy remained sluggish in June and July.

Abercrombie & Fitch was one of many retailers to fall after reporting bigger-than-expected slump in July sales. In addition, weekly jobless claims painted a picture of lagging growth, traders said.

Nortel Networks Corp. slipped 6 cents to $7.56 and was the most-active stock on the NYSE. The world's largest telecommunications equipment supplier said it plans to privately sell $1 billion of convertible senior notes. The sale of the seven-year notes is expected on Thursday night, a person close to the sale said.

A convertible bond is a hybrid security that can be converted into company stock. Shares often fall after a company announces a sale because some investors sell the underlying stock short, the bonds may dilute the stock and bondholders rank ahead of shareholders in a company's capital structure.

Retailers slammed Wall Street with disappointing sales.

Youth-oriented apparel retailer Abercrombie & Fitch said sales dropped 14 percent from the year-ago, more than double the drop of 4 to 6 percent analysts had expected. The company also said third- and fourth-quarter earnings would be below analysts' forecasts. Its stock tumbled $6.15 to $29.99.

Gap Inc.'s sales fell 12 percent from a year ago. The No. 1 apparel chain lost $1.57 to $25.60.

One bright spot was women's apparel retailer AnnTaylor Stores Corp., which said its sales fell 17.4 percent, but that business picked up in the last week of July. Its shares jumped $3.03 to $31.70. Also, J.C. Penney Co. Inc. said July sales rose 2.2 percent, above its expectations. Penney rose 9 cents to $27.30.

Wal-Mart Stores Inc., the world's largest retailer, was off 36 cents to $54.17, even after saying sales rose 6 percent in July, above its expectations.

In company news, Solectron Corp., the world's largest electronics contract manufacturer, fell $2.42 to $14.78 after it agreed to buy Canada's C-MAC Industries Inc. for $2.7 billion to expand its technology, manufacturing capacity and access to the automotive market.

Based on Solectron's closing price of $17.20 on Wednesday, the deal is valued at a 33 percent premium over the Canadian company's stock at Wednesday's close. C-MAC's U.S. traded shares jumped $3.58 to $26.25.

Western Wireless Corp. fell $1.22 to $34.05. The wireless telephone service provider, on Wednesday posted a loss from continued operations that was wider than Wall Street analysts had expected. It also said subscriber growth fell short of expectations.

Wireless Facilities Inc., which designs and maintains wireless telecommunications networks, on Wednesday reported a loss, including items, but said it expects its revenues and cash flow to increase through the rest of the year.

Anchor Gaming, the gaming equipment maker now merging with industry giant International Game Technology, said on Wednesday its fiscal fourth-quarter operating earnings rose 9 percent over a year ago. The company also said it expects to report fiscal first-quarter profit of $1.25 a share, more than the average forecast of $1.15 by analysts surveyed by Thomson Financial/First Call. Its shares jumped $2.30 to $50.10.

The Russell 2000 index rose 1.55 to 474.17.

Overseas, Japan's Nikkei stock average dropped nearly 3.4 percent. In Europe, Germany's DAX index slid 1.8 percent, Britain's FT-SE 100 lost 1.3 percent, and France's CAC-40 fell nearly 2.0 percent.

-- Reuters and the Associated Press contributed to this report.