US STOCKS-Wall St pares losses to turn flat; energy still lower

By Ryan Vlastelica

NEW YORK, Oct 2 (Reuters) - U.S. stocks sharply cut their losses in afternoon trading and the Nasdaq rebounded after a steep decline earlier Thursday, but energy shares lagged the broader market.

The S&P 500 was down 0.1 percent after dropping more than 1 percent at its session low. The benchmark index remains on track for its fourth straight daily decline, but has rebounded above its 150-day moving average, a level it hasn't closed under since November 2012.

The Russell 2000 index of small-cap shares reversed its earlier losses to trade up 0.5 percent. It is now down abut 9.5 percent from its record close, exiting correction territory, which is defined as a 10 percent drop from a peak.

"Some people might have stepped into the Russell because they felt that this was as far as the decline was going to go. However, equity markets are directionless and people aren't quite sure where things are going. Consequently, a lot of traders are sitting off to the sidelines," said Mark Grant, managing director at Southwest Securities in Fort Lauderdale.

Energy shares continued to lag on the day, falling 0.9 percent even as crude oil turned flat. The sector was by far the weakest industry on the day.

The Dow Jones industrial average was falling 24.57 points, or 0.15 percent, to 16,780.14, the S&P 500 was losing 3.81 points, or 0.2 percent, to 1,942.35 and the Nasdaq Composite was dropping 1.41 points, or 0.03 percent, to 4,420.67.

Declining issues were outnumbering advancing ones on the NYSE by 1,665 to 1,333, for a 1.25-to-1 ratio on the downside; on the Nasdaq, 1,598 issues were rising and 1,043 falling for a 1.53-to-1 ratio favoring advancers.

The benchmark S&P 500 index was posting 3 new 52-week highs and 25 new lows; the Nasdaq Composite was recording 18 new highs and 154 new lows. (Editing by Bernadette Baum)