Stocks closed higher, with bank shares rising broadly, though the market pulled back from its biggest gains as oil stemmed its slide.
Oil prices fell to a close of $115.01, down 99 cents a barrel, after fluctuating earlier. Crude dug in its heels after the close of the New York Mercantile Exchange, holding near $115 in the afternoon.
Earlier, oil's decline spurred investors to snap up bank stocks. Shares of Bank of America retreated slightly from their highs but still were up more than 3 percent in late trading, while JPMorgan Chase and Citigroup bothshowed gains of more than 1 percent.
The Dow Jones Industrials rose more than 100 points. The Nasdaqand S&P 500alsoreversed earlier losses and posted solid gains.
Stocks pared gains after oil closed as banks backed off their highs for the day amid some interim profit-taking.
Stocks initially fell after the Labor Department reported another hefty jump in consumer prices. Wall Street has been concerned that consumers are paring back their discretionary spending in the face of higher prices, in addition to falling home values and a chancy job market.
And because consumers' spending accounts for more than two-thirds of the economy, the fear on Wall Street is that the nation is in for a prolonged period of slow or even no growth.
But after its early disappointment with the CPI, investors began looking more positively at stock prices that were beaten down the past two sessions amid rising anxiety about credit losses at banks and brokerages.
"The greater fear right now is missing the next big rally," said Richard Dickson, senior analyst at Lowry Research in Florida. "Inflation numbers were bad, but they are probably going to get better. The fact that the market has not sold off with any strength, investors are saying, 'Hey, let's go ahead and buy.'"
In a separate report, the Labor Department said claims for unemployment benefits fell by 10,000 last week—less than anticipated and showed the labor market is still pinched because of the weak economy.
But investors seemed relatively unfazed by the latest economic data, turning instead to buying opportunities in the financial sector.
Reports of more credit losses at banks such as UBS and JPMorgan Chase sent shares tumbling earlier this week. The losses served as a stark reminder that the housing slump and resulting credit crisis are far from over.
But the resulting decline in stocks made many companies look more attractive Thursday.
Moreover, with many investors on vacation, and therefore fewer people trading, price moves were exaggerated.
Wal-Mart Stores, the world's largest retailer, reported a 17 percent rise in second quarter profit and raised its full-year outlook. But the big-box discount retailer expressed concern that the current quarter could miss targets, even though it maintained its full-year outlook, mitigating some gains.
In other news, General Motors has had preliminary contact with Russian oligarch Oleg Deripaska on a possible sale of its Hummer brand, according to Reuters.
GM led gainers on the Dow bluechip index, while ExxonMobil dropped along with the rest of the energy area.
One piece of good news for the space came from Estee Lauder, where shares soared after the company reported earnings that beat expectations.
Also, Gannett shares spiked after the media chain announced it was laying off 600 workers and eliminating 1,000 positions.
Commodity-related stocks, particularly metals, held the markets back from larger gains. The Dow Jones Platinum and Precious Metals Index fell more than 4 percent.
--Wire services contributed to this report.