* Investors stand pat ahead of Fed, elections
* 3M cuts outlook, weighs on industrials
* Initial jobless claims fall unexpectedly
* Dow off 0.2 pct, S&P off 0.01 pct, Nasdaq up 0.04 pct (Updates to midafternoon, changes byline)
By Chuck Mikolajczak
NEW YORK, Oct 28 (Reuters) - U.S. stocks edged lower on Thursday as investors took to the sidelines ahead of expected upheaval from next week's elections and likely additional stimulus by the Federal Reserve.
Next week's events could signal shifts in both monetary policy and legislative direction, leading investors to be cautious and largely disregard Thursday's corporate earnings and economic reports.
"You've certainly got a lot of people now nervous that what happens when they talk will be disappointing, and they should be concerned, because I don't know what (Fed policymakers) are going to say that is going to save the world," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
A look at exchange-traded funds based on some broad market indexes and sectors showed premiums for November out-of-the-money puts outweighed equally spaced call contracts for most instruments. Overall U.S. put volume rose 21.3 percent on Wednesday, while the CBOE Volatility Index logged its fourth consecutive session of gains, up 1.8 percent.
Thursday's session also brought about a breakdown in the recent inverse correlation between stocks and the dollar, as stocks slipped and the dollar index shed 1.1 percent against a basket of currencies.
"That correlation hasn't broken in quite some time. That could be disturbing a few people," added Saluzzi.
The Dow Jones industrial average dropped 20.36 points, or 0.18 percent, to 11,105.92. The Standard & Poor's 500 Index shed 0.16 points, or 0.01 percent, to 1,182.29. The Nasdaq Composite Index gained 0.93 points, or 0.04 percent, to 2,504.19.
3M slid 6 percent to $84.95 and pulled the Dow lower after the diversified manufacturer reported quarterly earnings that just beat expectations, but trimmed its outlook due to costs from recent acquisitions.
New claims for unemployment benefits fell unexpectedly in the latest week, and this more encouraging reading on the labor market, along with the weak dollar, gave stocks an early boost.
However, investors remained cautious about making big bets ahead of the outcome of the mid-term elections and the Fed's announcement. Fed policymakers are set to meet on Tuesday and Wednesday.
Anticipation of a Fed move has been a driver of recent market action as investors speculated over the size and time frame of further stimulus. Equity investors have bet that more easing will invigorate an economic recovery and lift asset prices.
Since the beginning of September, the S&P 500 is up 12 percent.
Most leading economists expected the Fed to buy between $80 billion and $100 billion in assets per month under a new program to bolster the struggling economy, a Reuters poll found.