(AP Photo/Richard Drew)

Stocks retreated Thursday as investors decided to lock in profits at the end of a historically strong month.

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Indexes rose sharply just after the market opened following news that unemployment claims dropped and manufacturing activity in the Chicago area rose. But since the initial burst of buying, traders decided it was a good time to pocket profits.

The Dow Jones industrial average fell about 38 points in afternoon trading. Even with the pullback Thursday, the Dow has risen 7.8 percent this month, putting it in line for its best September since 1939.

Technology shares, which have been among the best performers this month, were leading the pullback. Major technology companies like Apple Inc., Dell Inc. and Google Inc. were all down about 1 percent.

“You can’t underestimate people taking profits,” said T.C. Robillard Jr., a managing director at investment bank Signal Hill. Robillard said that like most reports throughout the month, Thursday’s batch of data only confirmed that the economy is growing very slowly.

Major indexes have been surging all month on signs of incremental improvement in the economy, which have allayed worries that the country would fall back into recession.

Traders were initially upbeat Thursday after a reading on regional manufacturing in the Chicago area jumped in September. Economists had expected the Chicago Purchasing Managers Index to fall slightly. That regional manufacturing report bodes well heading into Friday’s monthly report on national manufacturing activity from the Institute for Supply Management.

“The jump in Chicago PMI was nothing short of shocking,” said Nick Kalivas, vice president of financial research at MF Global. “It was complemented by the drop in (unemployment) claims.”

The Labor Department said Thursday that first-time claims for unemployment benefits fell more than economists had predicted last week. Applications are still at levels that indicate employers aren’t necessarily ramping up hiring, but at least the pace of firings seems to be slowing.

The government also slightly raised its estimate on second-quarter gross domestic product, the broadest measure of the nation’s economic activity. The government said GDP grew at 1.7 percent pace in the second quarter, better than the 1.6 percent pace estimated a month ago.

U.S. economic growth isn’t expected to pick up much because consumers have cut back on spending while unemployment remains high. Businesses have kept activity in check because of uncertainty surrounding potential tax changes and costs associated with recently passed health care and financial regulatory reforms.

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The Dow fell 37.62, or 0.4 percent, to 10,797.66 in afternoon trading. The Dow had risen 113 in the opening minutes of trading before pulling back.

Brett D’Arcy, chief investment officer at CBIZ Wealth Management Group, said traders might have also pulled back because the Dow was approaching the psychological barrier of 11,000. The Dow came within 52 points of that level Thursday morning. It has not touched 11,000 since May 4.

“We haven’t broken out of that mental cycle that this market might be range bound,” D’Arcy said.

The Standard & Poor’s 500 index fell 2.37, or 0.2 percent, to 1,142.36, while the Nasdaq composite fell 5.55, of 0.2 percent, to 2,371.01.

Bond prices fell, driving interest rates higher, after the upbeat economic reports dampened demand for defensive investments like bonds. The yield on the 10-year Treasury note, which is used to set interest rates on many kinds of consumer and corporate loans, rose to 2.52 percent from 2.50 percent late Wednesday.

In corporate news, American International Group Inc. reached a deal to repay billions of dollars it received from the government during the credit crisis. AIG was the largest recipient of bailout money during the financial crisis that peaked in 2008.

AIG shares rose $1.28, or 3.4 percent, to $38.73. Prudential shares fell $2.27, or 4 percent, to $54.26.

Apple shares fell $2.94 to $284.43. Dell dropped 7 cents to $12.93, while Google slid $2.69 to $525.00.

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange where volume came to 606.9 million shares.

Most European markets erased their losses after the economic reports in the U.S. They had been lower earlier in the day after Spain’s credit rating was cut and Ireland announced plans for a sweeping bank bailout program.

Britain’s FTSE 100 fell 0.4 percent, Germany’s DAX index dropped 0.3 percent, and France’s CAC-40 fell 0.6 percent.

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