Stocks closed higher in thin trading Thursday, led by strength in materials and industrials, erasing losses after several weak economic reports from earlier in the session.
The Dow Jones Industrial Average rose 21.57 points, or 0.17 percent, to finish at 12,471.02, led by Alcoa and Caterpillar. Chevron led the blue-chip laggards.
The S&P 500 eked out a gain of 3.02 points, or 0.23 percent, to close at 1,295.50, near the psychologically-significant 1,300 level. The Nasdaq added 13.94 points, or 0.51 percent, to end at 2,724.70 logging its sixth-straight day of gains.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished below 21.
Among key S&P sectors, materials rallied, while energy led the decliners.
“The economic data in the last two to three months have been two steps forward, one step back and today was a step back,” said Ryan Detrick, senior technical strategist at Schaeffer’s Investment Research. “But all in all, we’re still encouraged by the fact that we’re off to a good start—we don’t seem to be as chained to the euro has we’ve been in the past and surprisingly, Europe’s what’s holding us together today.”
On the economic front, weekly claims for unemployment benefits gained more than expected, according to the Labor Department, climbing by 24,000 to a seasonally adjusted 399,000, the highest in six weeks.
Meanwhile, retail sales rose a disappointing 0.1 percent in December, the weakest pace in seven months, according to the Commerce Department, as consumers pulled back late in the holiday shopping season.
And businesses inventories gained 0.3 percent in November, according to the Commerce Department.
In Europe, Spain sold 4.2 billion euros in a new 3-year issue and 2.5 million euros in an existing bond maturing in 2016, raising more twice the amount it had targeted. Yields fell across the board.
Italy also successfully sold government debt, with the lowest yield on the 12-month maturity since June 2011.
Meanwhile, the ECB left interest rates unchanged at 1.0 percentin its first policy meeting of the year, in line with market expectations.
"Ongoing financial market tensions continue to dampen economic activity in the euro area, while, according to some recent survey indicators, there are tentative signs of stabilization activity at low levels," ECB President Mario Draghi said in a press conference after the policy meeting.
Detrick said he is especially encouraged that the small and mid-cap stocks have been showing strength, which generally implies a “healthier bull market.” He also added that some positive news on the earnings front could help propel the S&P above 1,300.
Among financials, Bank of America's stock briefly traded above $7 before falling lower. Meanwhile, JPMorgan is slated to post earnings Friday before-the-bell. (Read More: JPMorgan Results to Verify Bank Rally?)
Concerns over company earnings could linger after Dow component Chevron warnedthat profit would be significantly lowerthan in the previous quarter. Rival ExxonMobil also declined.
One of the biggest factors affecting the energy sector is natural gas, which is hovering around $2.70 per 1,000 cubic feet and many experts believe the price can dip as low as $2, explained Mark McLain of Ladenburg Thalmann. Natural gas prices have fallen by more than 10 percent in the past week amid the relatively mild winter weather.
Oil prices quickly dropped to settle below $100 a barrelfor the first time in 2012 following a report that embargo on Iran exports may be delayed.
“Oil prices are going to have concerns of Iran and Middle Eastern tensions,” added McLain. “We’re also moving on spare capacity.”
Sears Holdings trading lower for most of the session after a report that said CIT Group will no longer provide loans to the struggling retailer's suppliers to finance their shipments. The stock rebounded near the close.
Dick's Sporting Goods surged after the company said the sporting goods retailer said it will buyback up to $200 million of its shares over the next year. However, the company lowered its earnings guidance, citing the warmer-than-expected weather.
Also among retailers, Williams-Sonoma plunged after the high-end kitchenware chain slashed its earnings outlook due to heavy discounting during the holiday season.
And Home Depot finished slightly lower even after the home improvement chain said it plans to hire more than 70,000 temporary workersfor the spring season.
Among techs, Research In Motion rallied amid market speculation the BlackBerry maker hired Goldman Sachs to explore strategic options.
Infosys tumbled after the Indian software groupreported a disappointing outlook for growth.
Starbucks hit another all-time high after UBS raised its price target to $52 from $47 and maintained its "buy" rating on the coffeehouse giant.
Meanwhile, Treasury prices slumpedafter the government sold $13 billion in 30-year bonds at high yield of 2.985 percent, with a bid-to-cover of 2.60.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
On Tap This Week:
FRIDAY: International trade, import & export prices, consumer sentiment, Richmond Fed Pres speaks; Earnings from JPMorgan
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