Stocks bounced back from the prior session's slide after better-than-expected sales reports from Wal-Mart and other retailers. Financials declined after federal regulators proposed increased oversight of investment banks.
This came after the prior session's sell-off, in which the Dow shed more than 200 points, led by financials, after comments from the SEC chairman rattled a market already depressed by crude oil's jump above $123 a barrel, where it held on Thursday.
On Thursday, the Federal Reserve and FTC proposed rules that would require lenders to inform and better explain to consumers when they are being offered less favorable terms before the consumer gets locked into a contract.
Initial jobless claims fell by 18,000to 365,000 last week, the Labor Department reported. Economists had expected a flat reading. The four-week moving average, however, ticked up by 2,500 to 367,000.
In other economic news, wholesale inventories fell by 0.1 percent in March, the first drop since December 2006, while sales jumped 1.6 percent, the Commerce Department reported. Economists had expected a 0.6-percent gain.
Stocks had opened the day higher after solid April sales reports from Wal-Mart and other retailers.
Wal-Mart reported its same-store sales, excluding fuel, rose 3.2 percent in April, more than analysts had expected.
Wholesalers Costco also beat expectations with an 8 percent rise, as did rival BJ's Wholesale , which posted a 12-percent increase excluding gasoline.
Teen retailers continued to fare well as teens don't have to deal with gasoline or food prices. Abercrombie & Fitch's same-store sales jumped 6 percent, and American Eagle's rose 2 percent. Interestingly, Aeropostale , whose clothing is about 30 percent cheaper than its rivals, saw same-store sales soar 25 percent.
Shares of Crocs shot up Thursday after the shoe maker posted a quarterly loss, hurt by a charge for the closure of a Canadian factory, but backed a 2008 outlook that was better than analysts had expected. Analysts expressed some concern about the company's ability to post plump margins.
Departments stores and specialty stores all reported declines in same-store sales and even Wal-Mart's CEO said consumers are increasingly having a hard time stretching their dollars. "As money gets tighter for them toward the end of the month, sales drop more than we have seen in the past," CEO Eduardo Castro-Wright said in statement Thursday.
"I think the month of April will be one of the stronger numbers you see, and I think it'll level out after that," Dana Telsey, chief research officer at the Telsey Advisory Group, told CNBC. "I think the consumers are strapped," she said. "I think that their wallets are definitely tighter this year than last year."
Some traders noted that cash-strapped consumer are increasingly turning to their credit cards.
"That spike yesterday afternoon in consumer credit was just dazzling," Art Cashin, head of floor operations at UBS, told CNBC, referring to the Federal Reserve report that showed consumer credit jumped to $15.29 billion in March, more than triple of what was expected. "Well over $6 billion of that was credit cards, which, I think, underscores my hypothesis that people are buying milk, bread and gasoline on a credit card -- it's their last lifeline to reality," Cashin said.
"The people who are at the sorry end of the stick apparently have decided, 'It takes you six months to foreclose on my house -- I’ll keep using my credit card and keep that current, maybe something good will happen in the next six months and I’ll catch up," Cashin said. It's their "point of survival."
Ford shares ticked higher after the auto maker's CEO said he sees Ford's turnaround gaining tractiondespite challenging North American conditions.
In earnings news, Toyota reported its profit fell 28 percentdue to a stronger yen and finance-related losses. The Japanese auto maker also issued a profit warning for full-year earnings, saying it expects to post its first decline in seven years as the U.S. auto market slows.
Cablevision unexpectedly posted a profit gain amid an increase in subscribers. The cable operator also outlined plans for a high-speed wireless Internet network, and said it's renewing its push to buy the Sundance Channel and Newsday.
The Bank of England and the European Central Bank met today, holding key interest rates steady, as expected. The ECB kept a key euro-zone rate at 4 percent, while the Bank of England kept its key rate at 5 percent.
The eurorallied on Thursday, recovering from a two-month low against the dollar.
In trans-Atlantic merger news, Italy's Finmeccanica is reportedly in talks to buy DRS Technologies while UK's Carphone Warehouse is to sell a 50 percent stake to Best Buy .
Also in Britain, Enodis has agreed to be bought by Illinois Tool Works for 1.03 billion pounds ($2 billion), turning its back on the agreed 948 million pounds ($1.9 billion) takeover by Manitowoc.
After Treasury Secretary Henry Paulson's recent remark that the worst of the credit crunch was over, more optimistic statements have begun to be heard.
The chief executive of Merrill Lynch, John Thain, said on Wednesday that the U.S. credit crisis is easing and the risk in its housing market is dramatically lower now, but economic growth will remain under pressure over the next year.
Still to Come:
THURSDAY: AIG earnings after the bell
FRIDAY: Trade report