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Stocks rise; another record finish for S&P 500

U.S. stocks advanced for a fifth day in six on Thursday, pushing the S&P 500 to an all-time high, as Wall Street tracked Treasury yields while betting the U.S. economy would rebound from its first contraction in three years.

The Commerce Department found gross domestic product declined at a 1 percent annualized rate in the first quarter. Analysts had estimated a 0.4 percent contraction.

Read MoreFrigid winter takes toll as U.S. GDP contracts for the first time in three years

"The weakness in the GDP report had been well-telegraphed, but negative 1 percent is eye opening," said Joe Peta, a managing director at Novus.

"As much as it gets written off as due to the weather, or today, with the further weakness attributed to a lack of an inventory buildup. Taken together, it's as if the bond market is telling us something, and calls into question just how healthy this economy is," Peta added.

"We're piercing yields that started to climb when (former Federal Reserve Chairman Ben) Bernanke first started using the term 'taper.' It was below 2 percent, then yields went on a rally for 3-4 weeks, that what we're retracing now. It it goes below 2.25 percent, it's worth noting," Peta said.

On Thursday, benchmark yields turned higher, with the 10-year Treasury note up 2 basis points at 2.461 percent, after falling as low as 2.3971, its lowest since June.

"The key thing for investors now is don't get fooled by the bond market, as it is distorted by central banks. If you torture something long enough it will lie to you, and that's what central banks have been doing to the bond market," said David Kelly, chief market strategist at J.P. Morgan Funds.

"The second estimate of GDP is backward looking. We knew that weather dramatically impacted growth in the first quarter and we fully expect a bounce back in the second quarter," noted Dan Greenhaus, chief strategist at BTIG,

Read MoreHere's why markets should look past negative GDP

"The market is not supposed to be a mechanism for discounting the past; the bond market is pretty much broken as an indicator as to where the economy is going," said Kelly, who adds that the bond market has been contorted by mismatched supply and demand issues.

"Supply has fallen dramatically in the last few years by the improvement in the budget situation, and demand is coming from people who don't care about price," said Kelly, listing the U.S. Federal Reserve, foreign central and commercial banks and mutual and pension funds trying to match longer-term liabilities.

Hillshire Brands rallied after Tyson Foods offered to acquire the meat producer for $50 a share. Shares of Costco Wholesale edged lower after the warehouse club operator reported third-quarter results beneath estimates.

"Costco earnings were okay, or a bit below. Like the economy, it's chugging along and not losing money, but the consumer is not showing signs of blow-out growth," said Peta.

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Another report had initial jobless claims falling by 27,000 to 300,000 last week, compared to estimates of 326,000. The latest number is "a positive," and brings the four-week average to 311,500, the lowest since August 2007, offered Peter Boockvar, chief market analyst at the Lindsey Group.

Separate data had pending home sales up 0.4 percent in April, below expectations.

"To bring back the first time home buyer in a more pronounced way, home prices need to further decelerate to a range more in line with income growth," emailed Boockvar.

"Clearly the housing market is much slower than it ought to be, given economic growth and low interest rates. What is still hurting housing is banks are still tight on mortgage finance, it's very hard for banks to make a good profit on mortgage lending," said Kelly at JPMorgan.

After a 12-point fall, the Dow Jones Industrial Average gained 65.56 points, or 0.4 percent, to 16,698.74, with Merck & Co. leading blue-chip gains that extended to 25 of 30 components.

The S&P 500 hit an intraday record for a third straight session, and closed at an all-time high, rising 10.25 points, or 0.5 percent, to 1,920.03, with materials and consumer staples faring best and telecommunications the laggard among its 10 major industry groups.

The Nasdaq gained 22.87 points, or 0.5 percent, to 4,247.95.

For every stock declining, two gained on the New York Stock Exchange, where 544 million shares traded. Composite volume surpassed 2.7 billion.

The dollar retreated against the currencies of major U.S. trading partners, while greenback-denominated commodities were mixed.

Gold futures fell, and the price of oil increased.

"The absence of inflation combined with the onset of imported disinflation from the eurozone and China's weakening currencies lends credence to the selloff in gold. The metal's shine is further eroded when new record highs in U.S. & European stocks operate in a low-inflation environment," Ashraf Laidi, chief global strategist at City Index in London, wrote in emailed research.

Stocks ended a four-session rally on Wednesday, with investors skittish as the 10-year Treasury yield fell to its lowest level since July.

—By CNBC's Kate Gibson

Coming Up This Week:

FRIDAY: Personal income & outlays, consumer sentiment, farm prices

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