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US STOCKS-Wall St dips as small-caps again weigh

* Russell 2000 approaches correction territory again

* J.C. Penney, Nordstrom soar after results

* Housing starts jump in April

* Indexes down: Dow 0.2 pct, S&P 0.3 pct, Nasdaq 0.5 pct (Updates to open)

By Ryan Vlastelica

NEW YORK, May 16 (Reuters) - U.S. stocks edged lower on Friday, with the Dow and S&P 500 on track for their third straight daily decline as small-cap stocks once again underperformed the market.

The Russell 2000 index of small companies briefly entered correction territory on Thursday, defined as a 10 percent decline from a recent high. It subsequently pulled back and is currently 9.8 percent below its high, suggesting that level is serving as support.

Still, the index is solidly under its 200-day moving average, a sign of weak momentum, and investors are worried that prolonged weakness in small names could be a precursor of broader losses. The Russell is down 0.5 percent on Friday.

"We're in the middle of a rolling sector correction, where some areas of the market are performing better than others," said Jerry Harris, president of asset management at Sterne Agee in Birmingham, Alabama, who noted that the S&P 500 hit an all-time record on Tuesday.

"The weakness we're seeing in the Russell gives us an opportunity to buy those names at a discount, and sets them up for a healthy recovery later this year."

General Motors Co fell 1.2 percent to $33.95 after the Department of Transportation said U.S. official would make a "major announcement" as part of its investigation into GM's handling of a vehicle recall. CNBC reported that GM would enter into a consent decree and pay a substantial fine.

The Dow Jones industrial average was down 26.68 points, or 0.16 percent, at 16,420.13. The Standard & Poor's 500 Index was down 5.44 points, or 0.29 percent, at 1,865.41. The Nasdaq Composite Index was down 22.00 points, or 0.54 percent, at 4,047.29.

For the week, the Dow is down 0.9 percent, the S&P is down 0.5 percent and the Nasdaq is off 0.5 percent.

A number of companies advanced on the back of strong results. J.C. Penney Co and Nordstrom Inc both jumped more than 10 percent after posting earnings a day earlier that topped forecasts. Nordstrom was the S&P's biggest percentage gainer.

Applied Materials rose 7.9 percent to $20.16 after reporting revenue that was slightly ahead of expectations, while Autodesk Inc raised its full-year revenue view, sending shares up 5.3 percent to $50.36. Both results came out after the market closed on Thursday.

Housing starts jumped 13.2 percent in April while building permits hit their highest in nearly six years, offering hope that the troubled housing market could be stabilizing. The PHLX housing sector index gained 0.2 percent.

(Editing by Bernadette Baum)