* Initial jobless claims rise, Philly Fed well below forecasts
* Stocks on track for biggest two-day drop since November
* Wal-Mart climbs after earnings, Safeway soars
* Linn Energy to buy Berry Petroleum for $4.3 billion
* Indexes off: Dow 0.4 pct, S&P 0.6 pct, Nasdaq 0.8 pct
NEW YORK, Feb 21 (Reuters) - U.S. stocks fell on Thursday, on track for the biggest two-day decline since November, as weak data suggested expectations for economic growth were overly optimistic.
The two-day decline was stocks' first sustained pullback this year. The S&P 500 is up 5.4 percent so far this year and risen for seven straight weeks, putting it near five-year highs.
In the latest economic data, initial claims for unemployment benefits rose more than expected last week while the Federal Reserve Bank of Philadelphia said its index of business conditions in the U.S. mid-Atlantic region fell in February to minus 12.5, the lowest in eight months.
"The Philly Fed report was troublingly weak, and adds to concerns about whether growth will remain up," said Brad Sorensen, director of market and sector analysis at Charles Schwab in Denver. "The only growth we're seeing is sluggish."
The S&P 500 and Nasdaq posted the worst daily decline of the year on Wednesday after comments from the Federal Reserve sparked concerns the central bank may rein in its economic stimulus measures.
"The upside momentum in markets appears to be coming to an end as we consolidate recent gains," said Adam Sarhan, chief executive at Sarhan Capital in New York. "If the S&P breaks under its 50-day moving average, something more serious could be in store."
The benchmark index would need to fall 1.9 percent to reach that level of 1,473.58.
Other reports showed consumer prices were flat in January while existing-home sales edged higher and left inventory of homes at the lowest level in 13 years.
Wal-Mart Stores Inc gained 3.1 percent to $71.34 and helped limit losses on the Dow after reporting earnings that beat expectations, though early February sales were sluggish.
The Dow Jones industrial average was down 53.07 points, or 0.38 percent, at 13,874.47. The Standard & Poor's 500 Index was down 8.26 points, or 0.55 percent, at 1,503.69. The Nasdaq Composite Index was down 24.71 points, or 0.78 percent, at 3,139.70.
The benchmark S&P index has dropped 1.8 percent over the past two sessions, the biggest two-day decline since November.
Wall Street will soon face another test with the upcoming debate in Washington over the automatic, across-the-board spending cuts put in place as part of a larger congressional budget fight. Those cuts, due to kick in March 1 unless lawmakers agree on an alternative, are expected to depress economic growth.
In company news, Safeway Inc jumped 15 percent to $23.12 and was the S&P's top percentage gainer after it reported earnings that beat expectations.
VeriFone Systems Inc tumbled 38 percent to $19.69 after forecasting first and second-quarter profits well below expectations.
According to Thomson Reuters data through Thursday morning, of the 427 companies in the S&P 500 that have reported results, 69.3 percent have exceeded analysts' expectations, compared with a 62 percent average since 1994 and 65 percent over the past four quarters.
Fourth-quarter earnings for S&P 500 companies are estimated to have risen 5.9 percent, according to the data, above a 1.9 percent forecast at the start of the earnings season.
Berry Petroleum Co jumped 17 percent to $45.16 after oil and gas producer Linn Energy LLC said it would buy the company in an all-stock deal valued at $4.3 billion including debt. Linn Energy shares advanced 2 percent to $37.34.