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Stocks Rally Ahead of Close; Banks Rise

Stocks rose modestly in light late-afternoon trading Thursday after a pair of upbeat economic reports.

The Dow Jones Industrial Average was up almost 50 points, led by Bank of America , Johnson & Johnson and AT&T , after rising half a percent in the previous session.

The S&P 500and Nasdaq were also higher. TheCBOE Volatility Index, widely considered the best gauge of fear in the market, fell near 23.

Stocks rallied throughout the morning after new jobless claims for unemployment benefits fell more than expected last week to a two-month low last week to 451,000. Economists had expected a more modest drop to 470,000.

However, investors turned cautious after a Labor Department official said that nine states didn’t file claims data to the Labor Department for the latest reporting week because of Monday's Labor Day holiday. As a result, California and Virginia estimated their figures and the government approximated the other seven, the official said.

Most key S&P sectors were higher, led by financials, health care and telecom, while materials were lower.

Although growth is expected to be slow, this is a good chance for investors to buy into some high quality companies, said Sarat Sethi, partner and portfolio manager at Douglas C. Lane & Associates.

“Investors can really create a diversified portfolio with a bunch of stocks that we haven’t been able to buy in the last decade that not only have exposure to the U.S. but all across emerging markets,” Sethi told CNBC.

McDonald's was the biggest decliner on the Dow after the fast-food chain reported its same-store sales rose 4.6 percentin August but fell short of analyst expectations amid soft sales in Europe.

Financials were among the leaders but pared their gains following news that Deutsche Bank is trying to raise as much as 9 billion euros ($11.4 billion) through a stock sale, according to reports from Bloomberg. The German bank refused to comment. Deutsche Bank tumbled almost 4 percent.

Both Bank ofAmerica and Goldman Sachs remained higher.

Goldman was fined $27 million by the UK's Financial Services Authority for not notifying British authorities of an investigation in the U.S.

Several banks also got a boost after Rochdale analyst Dick Bove issued a list of 16 big bank takeover targets. Among them were Susquehanna , KeyCorp and Fifth Third .

The tech sector was largely mixed. Apple shares rose after the iPod maker said it is easing restrictions on how software developers create applicationsfor the App Store, allowing limited use of third-party tools such as Adobe's Flash software to build programs that run on Apple's gadgets. Adobe shares soared more than 12 percent following the news.

Google jumped after the company launched "Google Instant,"a tool aimed at speeding up search results.

Sony was up following news that the entertainment giant will create several animated series based on Marvel characters, including Iron Man, X-Men and Blade. Marvel is a unit of Disney .

Research In Motion rose even after an analyst at BGC Partners initiated coverage of the BlackBerry maker with a "sell" rating, citing that the firm's core strengths of security, keyboard, compression and battery life have a "diminishing appeal to both consumer and enterprise customers."

National Semi shares were flat ahead of earnings from the chip maker, due out after the bell today.

And Texas Instruments rose ahead of the semiconductor giant's mid-quarter update expected after the closing bell. Analysts will be looking for signs of how chip demand is holding up.

Industrial metal stocks such as U.S. Steel and AK Steel were hit after talk of a Chinese investigation into trading on the Shanghai rubber marketslammed investor sentiment.

Other industrials were mixed with Alcoa up, even after HSBC cut its price target on the aluminum maker to $12 from $14, and Boeing down.

Oil prices fell 42 cents, or 0.56 percent, to settle at $74.25 a barrelafter seesaw trading after investors shrugged off a government oil inventory report that showed crude supplies unexpectedly fell last week.

Teva Pharmaceuticals was upgraded to "outperform" from "perform" at Oppenheimer. A

nd Stifel Nicolaus started coverage of Amgen with a "buy" rating.

On the M&A front, French drug maker Sanofi-Aventis said it has not raised its offer for Genzyme , which remains at $18.5 billion, or $69 a share.

Meanwhile, 3M said it will buy Arizant, a company that makes heating blankets used to regulate the body temperature of patients undergoing surgery, for $810 million. This is 3M's third acquisition in about a month.

And there's buzz that 7-Eleven has made an offer of $40 a sharefor Midwest convenience-store chain Casey's.

Men's Warehouse advanced after the retailer said its profit rose 7.7 percent amid higher sales and improved margins.

Elsewhere in the retail sector, Toys 'R Us unwrapped plans to vastly expand its reach this Christmas by adding 600 "pop-up" stores, more than 260 Toy 'R Us shops within Babies 'R Us stores—and an additional eight outlet stores.

Treasurys slipped after the government auctioned $13 billion of 30-year bonds, which had a high yield of 3.820 percent and a bid-to-cover of 2.73.

Also in the day's economic news, The trade deficit narrowed more than expected in July as exports hit their highest level since August 2008.

Volume is low again, given the Jewish New Year holiday, Rosh Hashanah.

On Tap This Week:
THURSDAY: New York Fashion Week begins, after-the-bell earnings from National Semi
FRIDAY: Wholesale trade

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