Stocks gained modestly after several largely upbeat economic reports, and a positive outlook from shipping giant Federal Express.
The Dow Jones Industrial Average rose more than 25 points after falling slightly on Wednesday.
Alcoa , Bank of America and General Electric led blue chips higher, while Microsoft and Verizon fell.
The S&P 500 and the Nasdaq rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 18.
Most key S&P sectors rose, led by financials, consumer discretionary, and industrials, while health care slipped.
Surprisingly, the stock market initially fell after a report that manufacturing grew much more than expected in the Mid-Atlantic region during December. The Philadelphia Federal Reserve Bank's business activity index rose to 24.3 in December, after rising to 22.5 the month before.
Traders may initially jave been skittish after learning prices in the region surged and the employment index fell. But Jim Paulsen, strategist at Wells Capital Management, Minneapolis, said the report overall had only good news.
Price increases during a period of economic recovery aren't surprising, Paulsen saidn. Moreover, while the index for employment fell to 5 in December from 13.3 in November, the average work week went from 10.9 in November to 19.3 in December, nearly a record, he said.
"If you put those two together you get income generation," Paulsen said. "It's hard not to look at this report and say, wow it was good. Everything looks fairly good and by a long shot it was better than expectations."
The market's mixed reaction may reflect the fact stocks have risen considerably recently even as interest rates have risen and European sovereign debt troubles resurface, he said.
The market "almost wants to take a pause but every morning we get hit with better numbers," Paulsen said.
While stocks struggled for direction early in the session, the moves have been in a narrow range, and are basically "rounding errors," said Brian Battle, vice president of trading at the Chicago-based Performance Trust Capital Partners, who described the PhilFed Survey as volatile and thus not a good barometer of economic activity.
The bigger issue is whether stocks can keep rising, which Battle believes is doubtful if bond yields continue to rise, providing an attractive alternative to equities. Stocks, at some point, "will have to give up some of their gains," he said.
Bond prices fell further Thursday on the better-than-expected economic news, as the benchmark 10-year Treasury note yield rose to 3.5 percent. The dollar also rose on the news against a basket of currencies, but was recently down slightly. Gold, meanwhile, sank to $1,366 an ounce.
Economic bellwether FedEx surged, despite a disappointing earnings report, as investors focused on the shipping company's long-term outlook. Also, the fiscal second quarter results, which were well below market estimates, were dragged down by changes in compensation and benefits as well as higher fuel costs.
In other earnings news, General Mills fell in pre-market trading after reporting disappointing fiscal second-quarter earnings and sales. The foodmaker, however, reaffirmed its full-year guidance.
Winnebago shares soared after reporting better-than-expected earnings on Thursday for the fifth consecutive quarter as sales of recreational vehicles continued to rise.
And Discover Financial Services was higher Thursday after reporting a 4.8 percent gain in profit to $346.5 million in its fiscal fourth fourth quarter, or 64 cents a share. The company benefited from a boost in spending by consumers and expansion of its non-lending business lines.
Research in Motion and Oracle will report earnings after the bell. Oracle rose after Macquarie Equities upgraded the stock to "outperform" from "neutral," on momentum from integrated hardware and software products.
Apple rose slightly after it raised its price target for the tech giant to $395 a share from $380. Meanwhile, Nokia filed new patent infringement complaintsagainst Apple in the UK, Germany and the Netherlands, related to the company's touch screen interface.
In the financial sector, Bank of America, rose after news it initiated potential settlement discussions with several mortgage investors, the Wall Street Journal reported late Wednesday.
And Lehman creditors filed a rival reorganization plan saying the proposal filed by Lehman in March favors big creditors and banks.
Stabucks got a boost from Goldman Sachs, which added the coffee company to its "conviction buy" list and named the company its best restaurant investment idea heading into 2011.
The action came as Goldman resumed coverage of the restaurant sector with an "attractive coverage" view. Goldman gave Chipotle Mexican Grill and Tim Hortons "buy" ratings, and Yum Brands , McDonald's and Panera Bread , "neutral" ratings. The brokerage, however, rated Wendys/Arby's a sell.
In other economic news, initial claims for unemploymentdropped ,000 for the week ended Dec. 11 to 420,000 from a revised upward 423,000 level the week before. Economists surveyed by Reuters expect claims to fall by 1,000 to 420,000, down from 421,000 last week.
Continuing claims, however, rose to 4.14 million in the week ended December 4, exceeding an estimate of 4.07 by analysts surveyed by Reuters. Continuing claims from the week before were also revised higher.
The four-week moving average of claims fell to 422,750, the sixth straight week of declines.
Housing starts, rose 3.9 percent to a seasonally adjusted annual rate of 555,000 units, slightly more than expected, but permits for new housing disappointed, slipped 4 percent, the Commerce Department reported Thursday. The drop in permits led to a 1 1/2 year low.
In Europe, stocks ended higher, as food and beverage stocks rose after positive results from Danisco, a Danish maker of food ingredients, although investors remain worried about euro zone debt difficulties.
European Union leaders meet later Thursday to discuss ways to solve the debt crisis, while German Chancellor Angela Merkel said the debate over issuing common euro zone bonds was settled.
In Asia, S&P raised China’s long-term sovereign credit rating to AA- from A+ citing more stable macroeconomic conditions and strong foreign exchange reserves.
In U.S. politics, a new NBC News/Wall Street Journal poll showed President Barack Obama is leading prospective Republican challengers for 2012 and benefiting from the tax-cut compromise he has struck with Republican leaders.
On Tap This Week:
THURSDAY: After-the-bell earnings from Oracle, Accenture, Research In Motion, and Take-Two.
FRIDAY: Leading indicators, quadruple witching.
More From CNBC.com: