NEW YORK (AP) – Stocks slipped Thursday as lingering worries about the subprime mortgage market and rising oil prices led investors to reconsider extending this week’s big rally.

Falling unemployment claims and strengthening markets overseas weren’t enough to give the markets a second wind to build on Wednesday’s 159-point gain in the Dow Jones industrial average. The surge gave the blue chip index its best three-day performance since November 2004.

The Federal Reserve appeared to have opened the way to a possible reduction in short-term interest rates, which unleashed a wave of buying that continued in Asia and Europe Thursday. The Fed, which left interest rates unchanged Wednesday, also issued an economic assessment that appeared to open the way for a rate cut in the future.

But investors’ enthusiasm waned a bit on Thursday, as market experts debated whether the Fed’s statement truly indicated a shift in policy, and as climbing energy costs made it look unlikely that the Fed’s inflation concerns will ease enough to provoke a rate cut.

Investors’ attention was also on the Senate Committee on Banking, Housing, and Urban Affairs convenes a hearing on subprime mortgage lending. Sen. Christopher Dodd, D-Conn., said regulators showed a “pattern of neglect” as banks and subprime mortgage lenders, which make loans to people with poor credit, lowered lending standards in recent years. Executives from HSBC Finance Corp., Countrywide Financial Corp., WMC Mortgage and First Franklin Corp. plan to testify.

In midmorning trading, the Dow Jones industrial average was down 4.08, or 0.03 percent, at 12,433.44, while the Nasdaq composite index fell 4.17, or 0.17 percent, to 2,451.75. The Standard & Poor’s 500 index fell 0.15, or 0.01 percent, to 1,434.89.

The Labor Department reported Thursday that the number of laid-off workers seeking unemployment benefits fell to 316,000 last week, the third consecutive decline. Though the numbers can change dramatically week to week, it was a good sign to investors that consumers are finding work – and are therefore able to keep spending.

Bonds fell after the jobs data, with the yield on the benchmark 10-year Treasury note rising to 4.56 percent from 4.54 percent late Thursday. The 10-year yield was higher than that of the 2-year, which many market participants took as a positive sign given that prior to Wednesday, short-term yields had exceeded long-term yields since August 2006 – a pattern that some say portends a recession.

Oil prices climbed more than $1 to $61.17 a barrel on the New York Mercantile Exchange, as U.S. gasoline supplies keep declining as the nation heads into the peak driving season.

The dollar rose against other major currencies, while gold prices climbed.

The markets reacted little to the Conference Board reporting a 0.5 percent in its index of leading indicators for February, compared with a January increase of 0.1 percent. The drop indicated moderate but choppy growth, and was what analaysts had been expecting.

The Russell 2000 index of smaller companies was down 0.48, or 0.06 percent, at 806.99.

Overseas, Japan’s Nikkei stock average rose 1.49 percent. In afternoon trading, Britain’s FTSE 100 was up 0.85 percent, Germany’s DAX index was up 2.00 percent, and France’s CAC-40 was up 1.58 percent.

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