Worries that China may move to cool its overheating economy weighed down U.S. stocks on Thursday, but rising bank shares kept the market near break even.

Shares of industrial and materials companies, linked to economic growth, fell as Chinese inflation spiked to a 16-month high and offered fresh arguments for monetary tightening in the world's third-largest economy.

An index of U.S. industrial shares <.GSPI> slipped 0.3 percent, with diversified manufacturer 3M CO down 0.9 percent at $80.82.

The market is trying to assess how the Chinese will staunch inflationary pressures, said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

But bank stocks rose as bipartisan talks on an overhaul of financial regulation, which could hurt bank profits, failed in the U.S. Senate.

Citigroup shares, up 3.3 percent at $4.09, were among the top gainers, after its chief executive told investors he views the troubled bank as well positioned to return to sustained profitability.

The KBW bank index <.BKX> rose 0.8 percent to a fresh 16-month high at 50.71.

It's a positive indicator for the broader market to have financials gaining momentum even in an overall very tight trading range, Krosby said.

The Dow Jones industrial average <.DJI> shed 8.31 points, or 0.08 percent, to 10,559.02. The Standard & Poor's 500 Index <.SPX> fell 1.83 points, or 0.16 percent, to 1,143.78. The Nasdaq Composite Index <.IXIC> dropped 4.02 points, or 0.17 percent, to 2,354.93.

The Nasdaq Composite dipped after five straight winning sessions, with most declines coming from the biotechnology sector. Celgene Corp shares fell 1.5 percent to $60.97.

The U.S. trade deficit narrowed unexpectedly as oil imports fell to their lowest since February 1999, but exports slipped after rising in the eight previous months.

Stock futures barely budged before the open following a report showing initial jobless claims dropped by 6,000 to 462,000 in the latest week, slightly more than the expected 460,000.

In other corporate news, BP Plc will pay $7 billion to Devon Energy for assets that will extend its reach into Brazil and bulk up its position in the Gulf of Mexico.

Devon shares rose 1.2 percent to $72.52. The U.S.-listed shares of BP Plc gained 0.6 percent to $56.53 on the New York Stock Exchange.

(Reporting by Rodrigo Campos; Editing by Jan Paschal)

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