Stocks had their best day in three weeks as markets enter the home stretch to the quarter end.
Despite a less than favorable weekly jobless claims report, the market was up Thursday, in part, on encouraging earnings news from a home builder, Lennar and retailer Bed, Bath and Beyond .
Friday's markets will watch data that deals with the consumer - personal income and spending at 8:30 a.m. and consumer sentiment at 10 a.m. KB Home reports earnings Friday ahead of the bell, and traders say investors will continue to game which stocks will be affected as Russell rebalances its indices. A final list of stocks impacted by the reconstitution is expected after the close.
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Stocks Thursday broke a four-day losing streak, with the Dow up 2.1 percent, or 172 points, to 8472. The S&P 500 jumped 2.1 percent, finishing at 920, up 19, and the Nasdaq finished up 2.1 percent at 1829. It was the best day since June 1 for the Dow and Nasdaq.
A strong afternoon Treasury auction of 7-year notes also gave stocks a bump. Investors bid up some of the best performers of the quarter. Industrials were the top sector, up nearly 3 percent, and consumer discretionary stocks were a close second. The worst performers were telecom, up just 1 percent and consumer staples, up 1.5 percent.
But what traders say kept the rally going was the testimony of Fed Chairman Ben Bernanke on his handling of the Bank of America, Merrill Lynch merger.
Traders though say Bernanke's comments before the House Oversight Committee didn't exactly move the market higher, but they didn't hurt it either. It was more a case that Bernanke did not damage his reputation as he defended his role and that of regulators in the hastily arranged marriage of Bank of America and Merrill. Bernanke also reaffirmed that he did not threaten Bank of America CEO Ken Lewis or lead him to hide information that should have been reported.
"He didn't hurt himself, but I would have liked to see him be a little tougher," said one trader.
Traders were surprised by the strength of the Thursday Treasury auction, the third in a record week of issuance.
"This has been an interesting week for Treasurys, with the $104 billion going down without a single tail in the auction," said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald.
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"I'm not going to read a whole heck of a lot into it. We've been trading in a very tight range. For the time being, we're saying 4 percent (yield on 10-year) is the upper end of the range. I think the indirect bids at these auctions are showing you right now there is at this moment in time, good foreign demand and good institutional demand. I'd have to say there were probably some U.S. bank portfolios involved," he said.
"We've got the quarter end and there's probably people that want to have Treasurys on their books for that," he said. Edmonds also said he expects Treasurys to continue to struggle with supply. The next challenge will be when the government auctions 3-year, 10-year and the 30-year bond in two weeks.
"I think that'll be a much more important test," he said.
Treasurys saw buying along the curve, which pushed yields lower. The 10-year yield slipped to 3.547 percent, its lowest level since May 29. The two-year was at 1.125 percent. The dollar Thursday fell 0.35 percent against the euro after scoring gains earlier.
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