Wall Street investors on Thursday adopted a defensive stance ahead of Friday morning's employment data, using a smaller-than-expected crude output rise from leading producers as an excuse to ignore positive economic and corporate news.

The Organisation of Petroleum Exporting Countries said an immediate output increase of 2m barrels per day would be followed by a 0.5m bpd rise in August, disappointing those expecting the full increase at once.

The resulting rebound in crude prices compounded worries about mixed sales data from leading retailers and economic data readings that analysts said were solid, even though some were below forecasts.

Trading volumes continued to be low and 1.2bn shares were expecting to trade on the New York Stock Exchange floor, prompting Arthur Cashin, managing director at UBS, to sum the action up as a "vigil for payroll data [that] makes for another comatose session".

With two hours to go, the Dow Jones Industrial Average was 0.1 per cent lower at 10,251.90 while the S&P500 index eased 0.3 per cent to 1,121.75. The Nasdaq Composite index gave up 0.7 per cent to 1,975.41.

Peter Cardillo, chief market analyst at SW Bach, said yesterday's news on oil and the economy was "an excuse" for investors to do nothing before this morning's data. Regarding crude prices, he added that the markets simply have to become used to $40 crude just as they have become accustomed to terrorism threats and other variables.

Analysts have pointed out that Opec's output increases aside, high global demand for oil is likely to keep prices high for the foreseeable future. In addition, a shortage of refining capacity in the US is likely to prevent cheaper crude oil from resulting in cheaper fuel at pumps for American consumers.

A further relative shortage exists in oil shipping capacity, which leads to higher costs of getting the crude from producers to refineries. The shares of Frontline, the Norwegian shipping company, rose 3.8 per cent to $38.21 and were among the top performers on the NYSE. Oil shipping stocks have benefitted from the consistently higher demand for oil in the context of limited capacity of fleets.

Amid recent concerns that high petrol prices might keep the US consumer away from shopping centres and stores, yesterday's reports from retailers on May sales offered a mixed picture of spending trends.

Wal-Mart, whose chief executive officer had voiced concerns that high petrol price might bite into sales, said in May sales at stores open at least a year rose 5.9 per cent last month, prompting a 1.9 per cent rise in the shares, a Dow component, to $57.43.

Not all retailers fared as well, with Dillards shares suffering a 7.3 per cent fall to $19.20, a showing that placed them among the worst decliners on the NYSE. The department store operator said same-store sales fell 5 per cent.

Guess?, a specialty clothing retailer, said same-store sales rose 14.6 per cent in May but saw shares fall almost 3 per cent to $14.70, also among the top decliners on the NYSE.

Outside the retail sector, technology shares attracted some attention, following declines on Wednesday after some mixed mid-quarter updates from companies in that sector.

Investors sold off Intel shares 1.5 per cent to $27.59 ahead of the mid-quarter update from the world's largest semiconductor company.

Mr Wachtel at Wachovia said expectations for Intel's news were low in view of slowing demand for the products in which its chips are used, such as notebook computers.

Rumours that China might raise interest rates to curb the runaway growth of its economy swept the market since Wednesday. The fact that several analysts noted they were unsubstantiated did not prevent the NYSE-listed shares of several Chinese companies to rank among the worst performers on Wall Street.

Aluminium China fell 4.5 per cent to $52.79, China Unicom gave up 4.3 per cent to $7.22 while China Telecom lost 4.5 per cent to $29.80.