U.S. stocks closed near session lows on Thursday, failing to hold initial gains, as lack of resolution between Greece and its creditors weighed on investor sentiment. (Tweet This)
"The continued overhang from Greece cast a bit of a pallor over the market," said Bill Stone, chief investment strategist at PNC Asset Management. "It's hard because we obviously had such high hopes to start the week."
Optimism over the negotiations on Monday and Tuesday helped the Nasdaq set records, but on Wednesday the talks came to a standstill.
The major averages extended losses in afternoon trade after earlier struggling to hold gains as a meeting between Greece and euro zone leaders ended without a deal being struck. Another meeting was scheduled for Saturday as the June 30 deadline approaches, Reuters reported.
Analysts also pointed to other factors that added to Thursday's stock declines.
"I think it's simply ... the failure to hold support at that 2,110 level," said Bob Pavlik, chief market strategist at Boston Private Wealth. Once the S&P 500 hit 2,109, "it seemed to gain a bit of momentum to the downside."
"If Greece does fail to come to an agreement you may see some short-term pressure," he said.
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"The fear premium is so baked in to this market," said Adam Sarhan, CEO of Sarhan Capital. He also noted continued weakness in the Dow transports, which fell deeper into correction territory on Thursday. "It appears there's lots of bullish fatigue out there."
The Dow transports closed down 0.84 percent, extending a near-2 percent decline from the prior day. Avis Budget Group plunged nearly 5 percent as the greatest laggard. The iShares Biotechnology ETF traded 0.75 percent lower.
"We're going to be held hostage with our perception of what's going on in Greece," said Art Hogan, chief market strategist at Wunderlich Securities.
European equities ended mixed, with the pan-European Stoxx 600 and the FTSE 100 indexes closing lower, while the French CAC 40 and the German DAX ended flat.
"[Greece] definitely has an impact [on stocks], but not to the degree it has on Europe," said Howard Silverblatt, senior index analyst at S&P Dow Jones Indices. "There are a lot of traders saying this is a done deal; it's just a matter of what the final score is going to be."
In contrast to the overall market decline, hospital stocks HCA Holdings, Tenet Healthcare, Community Health Systems and Universal Health Services surged about 7.5 percent or more after the U.S. Supreme Court ruled that federal subsidies that help nearly 6.4 million people pay for their Obamacare health plans are legal under the Affordable Care Act.
Separately, Humana jumped more than 7 percent after it was briefly halted for volatility on a report indicating Aetna was close to acquiring the company. Aetna gained nearly 4 percent.
Investors also eyed additional signs of moderate economic growth. Weekly jobless claims came in at 271,000, slightly below analysts expectations.
"We've been under 300,000 [jobless claims] for a while now, and that suggests the labor market continues to heal," said Greg Woodard, portfolio strategist at Manning & Napier Advisors, adding that this employment trend leads to expectations of a Federal Reserve rates increase by the end of 2015.
Read MoreGreek deal hopes wane as crunch talks continue
U.S. consumer spending rose 0.9 percent for the month of May, its largest gain in nearly six years while personal income increased 0.5 percent last month.
"The income component was encouragingly driven by the wage and salary side as it was up 0.5 percent month-over-month, the best since January and was higher by 5 percent year-over-year," Peter Boockvar, chief market analyst at The Lindsey Group, said in a note. "Bottom line, second-quarter GDP spending figures will be revised modestly higher due to the 0.6 percent REAL spending increase versus the estimate of up 0.4 percent."
"I think what the market is seeing is a firming economy, but is it growing?" said Tom Wright, director of equities at JMP Securities. "We're wrapping up the first half of the year with very low volatility and it will be interesting to see what the second half brings."
The services PMI fell from 56 in May to 54.6 in June, showing a slower growth rate in the services sector.
The Kansas City Fed manufacturing index improved month-over-month in June, coming in at negative 9, above May's decline of 13.
U.S. crude oil futures closed down 57 cents, or 0.95 percent, at $59.70 a barrel. Earlier, the EIA reported a weekly natural gas build of 75 billion cubic feet.
Yields on benchmark U.S. 10-year Treasury notes trimmed gains to near 2.40 percent following a $29 billion seven-year notes sale at a high yield of 2.153 percent.
The euro traded flat against the dollar at about $1.12.
In corporate news, BlackBerry announced a 12-million common stock buyback program to offset dilution from a new employee stock purchase plan.
Recreational vehicles maker Winnebago and consulting firm Accenture both reported quarterly profits that beat analysts' expectations on the top and bottom lines.
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Bank of America Merrill Lynch raised its rating on drug maker Eli Lilly to "buy" from "neutral", on increased estimates for several drugs still in Lilly's pipeline.
BB&T began coverage of apparel retailer L Brands with a "buy" rating, saying the parent of Victoria's Secret and Bath & Body Works has strong management and good brand positioning.
IAC/InterActiveCorp also announced plans to spinoff The Match Group, which owns a number of dating sites, including Match.com.
Shares of retailer Kroger closed flat, or 0.01 percent higher, after spiking more than 1 percent on its announcement of a 13.5 percent dividend increase and a 2-for-1 stock split.
Major U.S. Indexes
The Dow Jones Industrial Average closed down 75.71 points, or 0.42 percent, at 17,890.36, with Caterpillar leading most blue chips lower. UnitedHealth was the greatest of five index advancers.
The closed down 6.27 points, or 0.30 percent, at 2,102.31, with energy leading eight sectors lower and telecommunications and health care the only two gainers.
The Nasdaq closed down 10.22 points, or 0.20 percent, at 5,112.19.
About two stocks declined for every advancer on the New York Stock Exchange, with an exchange volume of 759 million and a composite volume of 3.2 billion in the close.
U.S. gold futures for August settled down $1.10 at $1,171.80.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, traded near 13.
The annual rebalancing of the Russell 2000 takes place on Friday.
—CNBC's Peter Schacknow contributed to this report.
On tap this week:
Thursday
Earnings: Nike
Friday
10:00 am: Consumer sentiment
12:45 pm: Kansas City Fed President Esther George on the payments system
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