Stocks advanced Thursday, but closed off intraday highs, as the dollar strengthened against the euro.
The Dow Jones Industrial Average gained 0.7 percent to close at 12848.95, the blue-chip index's highest level since January. The Nasdaq rose 1 percent, while the S&P 500 index advanced 0.6 percent.
The euro touched down at $1.565against the dollar intraday, after soaring above $1.60 earlier in the week, the highest level since its inception in 1999. Crude oil receded to close the day around $116 on the New York Mercantile Exchange.
"It appears that there's a rotation going on -- out of commodities and energy and into early cyclicals such as financials in anticipation of a recovery in '09," said Steve Neimeth, portfolio manager at AIG SunAmerica.
The S&P financial-sector index rose 0.5 percent. Energy stocks shed 2.2 percent, while materials lost 1.4 percent.
Chevron fell 2.2 percent, making the oil giant the biggest decliner on the Dow.
"The growing consensus is we've seen the worst out of the financial sector and the economy overall, and people are willing to take more risk and exposure in equities," Michael James, senior trader at regional investment bank Wedbush Morgan, told CNBC.
Citigroup jumped 4.6 percent and JPMorgan gained 4 percent. Travelers , one of the largest U.S. property insurers, rose 5 percent after it raised its full-year outlook. Insurer AIG shot up 7.1 percent, making it the biggest gainer on the Dow.
The other buzz in the market today was about a possible pause by the Federal Reserve. A front-page story in today's Wall Street Journal suggested the Fed may cut interest rates by another quarter point when it meets next week, then pause, or even start by holding rates steady next week.
There was little reaction to a dismal housing report, which showed new-home sales tumbled 8.5 percent in March to a a 17-year low and inventory swelled to an 11-month supply, the highest since September 1981.
"People have grown accustomed to this [weak] data ... and are expecting it to be worse for a couple more quarters," Neimeth said. "At some point, that housing number isn't going to be bad. At some point a financial company is going to say delinquencies are declining," Neimeth said.
Among other economic reports, initial jobless claims unexpectedly fell by 33,000last week. Durable-goods orders slipped 0.3 percent in March, but most of that was due to a slump in transportation, and a key gauge of corporate spending held steady.
Individual stocks moved sharply in response to earnings and outlooks.
3M was one of the biggest decliner on the Dow after the company, which makes Scotch tape and Post-It Notes, beat expectations -- albeit with a 29-percent drop in net income -- but said its profit margins slipped and that it sees more turbulence ahead for the flat-screen TV market. 3M makes coatings for LCD screens.
Ford, however, jumped 12 percent and General Motors was one of the top gainers on the Dow as investors cheered an unexpected profit from a U.S. auto maker. Ford swung to a profitof $100 million, or 5 cents a share, from a loss a year earlier, helped by strong results in Europe and South America and a narrowing loss in North America. GM is scheduled to report earnings next Wednesday before the opening bell; analysts expect a loss of $1.57 a share.
Apple shares rose 3.7 percent after one brokerage firm upgraded its rating on the stock and several others raised their price target, suggesting that momentum in the firm's Mac business and iPhone 3G would offset weak margins and deceleration in iPod sales.
Apple reported earnings after the closing bell Wednesday that blew past earnings and sales expectations, but issued a disappointing outlook for the current quarter.
Amazon.com also reported after the closing bell Wednesday. The online marketplace beat its earnings target and raised its sales forecast but cut its outlook for profit margins, pushing its shares down 4.1 percent.
Starbucks shares fell more than 10 percent after the coffee chain on Wednesday warned of weaker-than-expected earningsfor the second quarter and full year, citing the "weakest economic environment" in its history. The news prompted one analyst to say, "The wheels have really come off of this train."
Fertilizer stocks had rallied leading up to earnings from the sector, then sold off as soon as the numbers -- which were robust -- came out. Potash beat by a lot and issued full-year guidance that came in way above expectations. Bunge reported earnings that were nearly twice estimates and raised its guidance.
Motorola said its quarterly loss widened on cell-phone sales that were at the low end of expectations, a signal that the broader telecom market faces tough times.
PepsiCo reported higher profit as strong international results helped offset weakness in the US resulting from the soft economy and rising commodity costs. Results were in line with analyst estimates.
Drug maker Bristol-Myers Squibb said its profit fell on higher restructuring costs and taxes, but adjusted results topped Wall Street forecasts.
In Europe, Credit Suisse reported a quarterly loss, with credit-related writedowns of more than $5 billion. But there were no new negative surprises in the report and shares managed to climb more than 3 percent, with investors betting that the bank was getting most of its bad news out of the way.
Still to Come:
THURSDAY: Earnings from American Express and Microsoft after the closing bell
FRIDAY: Consumer sentiment; earnings from Ericsson, Honda
Send comments to firstname.lastname@example.org.