Retail stocks, led by a jump in Home Depot shares, curbed Wall Street's decline as concerns about the looming fiscal cliff weighed on sentiment.

Investors continue to gauge how a divided US Congress will deal with a series of mandated tax hikes and spending cuts that start to take effect next year and could take the world's largest economy back into recession.

Microsoft further dragged on technology shares and the Nasdaq after the surprising departure of an executive who had been seen as CEO material.

Home Depot raised its full-year outlook, adding to signs of a rebirth of the US housing market, driving the Dow component's stock to a level not seen since April 2000.

"Stronger retail sales in the fourth quarter portend well for equity performance in the fourth quarter, under the parameters of a normal scenario," said Quincy Krosby, market strategist at Prudential Financial in Newark, New Jersey.

She said the market's reaction is not larger on the upside "because of the macro-economic/political underpinning" regarding the fiscal cliff.

The Dow Jones industrial average dropped 33.86 points, or 0.26 percent, to 12,781.22. The S&P 500 fell 3.57 points, or 0.26 per cent, to 1376.46. The Nasdaq Composite Index lost 18.04 points, or 0.62 per cent, to 2886.22.

The S&P 500 is down 2.3 per cent so far this month.

Dow component Home Depot raised its full-year outlook even before accounting for any future sales lift in the aftermath of Superstorm Sandy, as the retailer benefited from a recent uptick in the US housing market.

Home Depot's stock hit an intraday high at $64.44, and was up 3.7 per cent at $63.42 in the final minutes befor the closing bell. The stock approaching its highest point in more than 12 years.

TJX Cos also beat analysts' forecasts and its shares added 2.8 per cent to $42.10. The S&P retail sector index advanced 1.4 per cent.

Microsoft shares fell 3.1 per cent to $27.13 after the surprising departure of a key executive, who analysts said marks the loss of the driving force behind the company's biggest product.

Technology shares slipped, with an S&P technology index down 0.7 percent.

AK Steel Holding Corp shares fell 16.5 per cent to $4.56 after the company forecast a fourth-quarter loss.

A German government source told Reuters that European countries were considering paying Greece several aid tranches totalling around 44 billion euros.

The comments came after a public clash between Greece's international lenders over how Athens can bring its debts down to a sustainable level threatened to escalate the euro zone crisis yet again.

Reuters