Stocks finished modestly higher Thursday, posting a three-day rally, thanks to a better-than-expected jobless claims report and as financials rallied following BofA's earnings report.
Still, gains were largely muted throughout the session as investors hesitated to jump in following the recent run-up in stocks.
"When the market marches higher as has for the last three weeks, it’s not a news event that triggers the pullback, it just appears to come out of nowhere and of course when you least expect it," wrote Elliot Spar, market strategist at Stifel Nicolaus, in his daily note.
The Dow Jones Industrial Average rose 45.03 points, or 0.36 percent, to close at 12,623.98, led by BofA . Pfizer was the biggest loser on the blue-chip index.
The S&P 500 added 6.46 points, or 0.49 percent, to finish at 1,314.50. The Nasdaq gained 18.62 points, or 0.67 percent, to end at 2,788.33.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, slipped near 20.
Among key S&P sectors, financials and consumer discretionary rose, while utilities lagged.
Bank of America rallied after the banking giant met earnings expectations and topped revenue estimates.
Meanwhile, rival Morgan Stanley posted a decline in revenueas the investment bank lost money in the fourth quarter due to a big charge related to a legal settlement. Still, the bank still topped earnings expectations, sending shares higher.
“There’s potential for more [market] upside,” said Brian Gendreau, market strategist of Cetera Financial Group. “Absence of bad news from Europe seems to be good news and it would help markets if we get any easing of the political paralysis.”
Weekly jobless claims dropped 50,000 to a seasonally adjusted 352,000 last week, according to the Labor Department, tumbling to a near four-year low. And consumer prices were flat for a second straight month in December, according to the Labor Department as gasoline fell and food rose moderately.
Meanwhile, housing starts declined 4.1 percent to a seasonally adjusted annual rate of 657,000 units in December, according to the Commerce Department, throwing cold water on recent recovery hopes in the housing sector.
“The economic data this morning was mixed…While as a whole, everything looks consistent with trends we’ve been seeing but many economists still think there will be a deceleration of growth in 2012,” said Gendreau. “The economy is still facing headwinds.”
Apple briefly hit an all-time high during intraday trading after the tech giant released a new digital textbook service called iBooks2, working with publishers Pearson PLC, McGraw-Hill and Houghton Muffin Harcourt.
- Check After-Hour Quotes for the Tech Giants
In addition, GE and Schlumberger are scheduled to report earnings before-the-bell Friday morning.
BP will agree to pay the U.S. Department of Justice between $20 billion to $25 billion next month to settle all civil and criminal chargesaround the oil spill in 2010.
Chesapeake slipped after natural gas producer received several downgrades and price target cuts amid declining natural gas prices. (Natural Gas Prices Are Expected to Keep Falling)
F5 Networks surged to lead the S&P 500 gainers after the tech firm forecast a strong quarter, helped by an increase in data consolidation demand from corporations looking to reduce costs.
Meanwhile, Johnson Controls plunged after the auto parts supplier reported a weaker-than-expected profit and slashed its 2012 earnings forecast.
Kodak filed for bankruptcy protectionand said it received a $950 million, 18-month credit facility from Citigroup to keep it going. Meanwhile, NYSE announced that Kodak's common stock should be suspended immediately.
European shares finished higher, buoyed by financials, with the euro touching session highs. Spain drew strong demand at a debt auction which sold more than 6.6 billion euros ($8.46 billion) of bonds with maturities of up to 10 years in its first test of market sentiment for euro zone bonds this year.
—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC—
On Tap This Week:
FRIDAY: Existing home sales; Earnings from GE, Schlumberger
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