Stocks edged lower on Thursday as rising yields on euro zone debt overshadowed optimism from data showing improvement by the U.S. economy.

Spanish bond yields hit 6.98 percent, their highest level since 1997, at a 10-year auction, while a French bond auction also saw high yields.

Somewhat offsetting those worries, data showed U.S. claims for jobless benefits hit a seven-month low last week, while permits for future home construction rebounded strongly, bolstering views the economy was gaining traction.

The 7 percent mark for bond yields is viewed by investors as unsustainable, as both Greece and Portugal were forced to seek bailouts after yields hit similar levels.

Investors have worried that the debt problems could tip the global economy into another recession, which would hurt U.S. growth even though data here has suggested economy is picking up.

The market is trying to focus on our own U.S. macro data, but it is still being trumped by the situation in Europe because the wheels seem to be coming off the bus over there, said Ken Polcari, managing director at ICAP Equities in New York.

As much as it is trying to shift the focus over here, it is difficult because it keeps getting drawn back into the exposure and the situation over in Europe.

The Dow Jones industrial average <.DJI> was down 5.26 points, or 0.04 percent, at 11,900.33. The Standard & Poor's 500 Index <.SPX> was down 4.56 points, or 0.37 percent, at 1,232.35. The Nasdaq Composite Index <.IXIC> was down 18.06 points, or 0.68 percent, at 2,621.55.

The Dow swung back and forth into positive territory, with energy shares lending upward support, including Exxon Mobil Corp , which rose 1.3 percent at $79.28.

On the Nasdaq, Applied Materials Inc fell 6.1 percent to $11.70 a day after the chip gear maker gave a cautious revenue outlook and warned it expects to be affected by a tough economy. The PHLX semiconductor index <.SOX> lost 2.5 percent.

Sears Holdings Corp reported a much wider-than-expected quarterly loss as higher markdowns and pricing pressures in appliances squeezed margins. Its shares fell 4 percent to $65.44.

(Reporting by Caroline Valetkevitch, additional reporting by Chuck Mikolajczak; Editing by Kenneth Barry)

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