By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks were flat on Thursday, with gains in the tech sector offseting sluggish factory activity data and lower oil prices, as investors exercised caution ahead of a key payrolls report on Friday.

A report from the Institute of Supply Management showed U.S. factory activity contracted for the first time in six months in August as new orders and production tumbled, but data on the labor market pointed to a pickup in third-quarter economic growth.

"The ISM data was, in a word, disappointing, because many investors and market participants were expecting to see a more robust number, something more in line with recent trend," said Peter Kenny, senior market strategist at Global Markets Advisory Group, in New York.

"It has forced investors to reconsider the landscape, not go blindly into the narrative that spells out a certainty about interest rates being bumped up in September."

Energy shares (.SPNY), down 0.3 percent, also weighed as oil prices declined on worries about a supply glut. U.S. crude (CLc1) settled off 3.5 percent at $43.16 a barrel while Brent (LCOc1) settled 3.1 percent lower at $45.45.

But gains in tech companies such as Hewlett Packard Enterprise (HPE.N), up 3.2 percent, and Apple (AAPL.O), up 0.6 percent, helped keep losses in check. A 4.5-percent gain in Charter Communications (CHTR.O) also helped lift the Nasdaq after S&P Dow Jones Indices said the cable services company would replace EMC Corp (EMC.N) in the S&P 500 after the close of trading on Sept. 7.

The economic data comes ahead of Friday's monthly nonfarm payrolls data, which could influence the Fed's decision on the timing of the next interest rate hike.

Solid performance in the labor market has spurred hawkish comments from some Fed officials in recent weeks. On Thursday, Cleveland Fed President Loretta Mester said the U.S. labor market is at full strength and the Federal Reserve needs to be on a path of gradual interest rate increases.

Traders have priced in a 27-percent chance of a hike in September, up slightly from the 24 percent probability in the prior session. The odds for a hike in December stand at 54.4 percent, edging up from 53.6 percent on Wednesday, according to the CME Group's FedWatch tool.

The Dow Jones industrial average (.DJI) rose 18.42 points, or 0.1 percent, to 18,419.3, the S&P 500 (.SPX) lost 0.09 points to 2,170.86, and the Nasdaq Composite (.IXIC) added 13.99 points, or 0.27 percent, to 5,227.21.

Declining issues outnumbered advancing ones on the NYSE by a 1.10-to-1 ratio; on Nasdaq, a 1.14-to-1 ratio favored advancers.