U.S. stocks fell on Thursday, extending earlier losses after a reading on Midwest business growth was revised downward, though it remained in expansionary territory.

While shares slipped in the last trading session of 2009, the three major U.S. stock indexes were on track to post their best yearly gains since 2003.

The December reading of the Institute for Supply Management-Chicago index, also known as the PMI or purchasing managers' index, was revised to 58.7 from the 60.0 level that was reported on Wednesday. The employment component of the index was revised to 47.6 -- below the threshold of 50 that represents expansion.

The employment revision is concerning and is causing a pall on the markets, said John Brady, senior vice president at MF Global in Chicago.

While today's light volume is exaggerating the importance of this, it's never good to hear that growth wasn't as strong as originally reported.

Earlier on Thursday, the Labor Department said initial claims for jobless benefits fell 22,000 to a seasonally adjusted 432,000 in the latest week, a 17-month low. While a drop in jobless claims is a bullish sign for the crucial labor market, some analysts cautioned that the holidays may have affected the data.

The Dow Jones industrial average <.DJI> fell 53.13 points, or 0.51 percent, to 10,495.38. The Standard & Poor's 500 Index <.SPX> shed 3.83 points, or 0.34 percent, to 1,122.59. The Nasdaq Composite Index <.IXIC> slid 6.22 points, or 0.27 percent, to 2,285.06.

Volume is expected to be light throughout the day, with many investors out for the holidays. At midday, only about 191.4 million shares had traded on the New York Stock Exchange, well below last year's daily average of 1.49 billion. U.S. financial markets will be closed on Friday for New Year's Day.

The broad S&P 500 is up 24.2 percent for 2009, on track for its best performance since 2003. That gain comes on the heels of the S&P 500's slide of 38.5 percent in 2008, when the economic crisis led to Wall Street's worst year since the Great Depression.

Despite this year's rally, Wall Street is also set to wrap up its first-ever negative decade on a total-return basis, even with dividends reinvested.

Walt Disney Co was one of the Dow's best performers, up 0.7 percent at $32.49 after Marvel Entertainment Inc shareholders approved a merger with Disney.

Interpublic Group of Companies Inc shares gained 1.2 percent to $7.37 after Wedbush upgraded the advertising company's stock to outperform and raised its price target to $9 from $5.50.

The CBOE Volatility Index <.VIX> or VIX, which is Wall Street's favorite gauge of investor fear, was up 3.11 percent at 20.58 -- above the psychologically watched 20 level and near its session high -- following the revised Chicago data.

In other data released on Thursday, the Institute for Supply Management-New York said business activity in New York City expanded in December for the fifth straight month, though at a slower rate than November.

(Reporting by Ryan Vlastelica)