Stocks Rally After Another Strong Auction

Stocks rallied Thursday as an unexpected profit from Bed, Bath & Beyond buoyed consumer stocks — and hopes for an economic recovery.

Stocks had opened lower after weekly jobless claims came in higher than expected but quickly rebounded.

Plus, another strong Treasury auction boosted confidence: The U.S. sold $27 billion of seven-year notes with a yield of 3.329 percent. This was the latest sign that the government isn't having any trouble selling its debt, following strong demand for auctions of 2-year and 5-year notes in the past two days.

And Federal Reserve Chairman Ben Bernanke testified on Capitol Hill today, saying he didn't bully Bank of America into buying Merrill.

"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management" if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances."

Bank of America stock skidded after Citigroup slashed its price target on the stock to $18 from $20, predicting a loss in the second quarter and a big writedown on Merrill Lynch debt. However, it kept its "buy" rating on the stock.

Bank of America also announced that it has raised over $12 billion in fresh capital.

Overall, bank stocks were mostly lower.

But retail stocks registered solid gains after Bed, Bath & Beyond reported a surprise profit as its results were helped by cost-cutting measures.

JCPenney jumped more than 5 percent and Home Depot gained more than 2 percent.

Rental-car giant Hertz surprised the market by posting a 2009 profit and its CEO told CNBC that it was buying new cars as fast as it could to meet surging demand. Shares rose.

Homebuilder stocks also rose, with shares of Lennar soaring more than 10 percent, after the company posted a wider-than-expected loss but reported an increase in new home sales and orders.

Nike shares skidded after the sports-gear maker posted a surprise increase in profit but said its forward orders dropped 12 percent.

And Kimberly-Clark shares fell after the company, which makes Kleenex tissues and Huggies diapers, announced plans to slash 1,600 jobs, or about 3 percent of its workforce, and incur $150 million in charges in an effort to boost its competitive edge.

Tech stocks continued to outperform the broader market after Oracle beat earnings expectations and reported record profit margins earlier in the week.

Microsoft shares rose as the software giant announced plans to slash the price of its new Windows 7 operating system by 8 percent.

Elsewhere in the sector, Yahoo holds its shareholders meeting in Santa Clara, Cal. at 1 pm New York time and Analog Devices rose after Raymond James Raises raised its rating on the chip stock to "stroung buy" from "market perform."

And there are a couple of earnings from the sector — chip maker Micron Technology and smart-phone maker Palm — both due out after the closing bell.

A hearing in the General Motors bankruptcy case Thursday could provide some insight into General Motors' finances and its efforts to exit bankruptcy.

American International Group said it will cut its federal loan burden by $25 billion by giving the government a preferred stake in two units that will be spun off from the insurance giant.

Another big gainer early on was Jefferies Group , after the investment bank posted earnings and outlook that beat expectations. Jefferies shares rose.

In the day's economic news, initial jobless claims jumped by 15,000 to 627,000 last week, higher than the expected 600,000 and indicative that the unemployment burden continues to pressure the economy.

"While many analysts pointed to the drop in continuing claims reported last week as evidence of a healing labor market, we are not so sanguine," Joshua Shapiro, chief U.S. economist at MFR, wrote in a note to clients. "With initial claims still very high at above 600K, it is unlikely that new hiring has picked up in any meaningful fashion. More probable is that long-term unemployed are starting to fall off the rolls as the duration of their unemployment benefits reaches the statutory limit."

And the economy contracted 5.5 percent, the Commerce Department said in its final reading on first-quarter GDP. That was a smaller contraction than the 5.7 percent initially reported.

After a two-day meeting, the Federal Reserve said Wednesday that the "pace of economic contraction is slowing" but that it "continues to anticipate that economic conditions are likely to warrant exceptionally low levels of the federal-funds rate for an extended period."

The Fed also said it would "employ all available tools to promote economic recovery and to preserve price stability." Policy makers didn't introduce any new debt buyback plans.

Still to Come:

THURSDAY: Earnings from Palm after the bell
FRIDAY: Personal income/spending; consumer sentiment; Earnings from KBHome

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