Stocks ended higher for a third session, a day before investors got a better glimpse of the economy's health in the August jobs report.
The Dow Jones Industrial Average ended up 50.63 points, or 0.5 percent to 10,320.10.
Alcoa , Home Depot and Honeywell led the blue-chips higher. Merck and American Express fell.
The S&P 500 rose 9.81 points, or 0.9 percent, to 1,090.10, while the Nasdaq rose 23.17 points, or 1.1 percent, to 2,200.01. The CBOE Volatility Index, widely considered the best gauge of fear in the market, was below 24.
Most S&P sectors were higher, with consumer discretionary, industrials and materials stocks performing best.
September was off to a strong start with back-to-back positive days. The Dow on Wednesday logged its biggest gain since July 7.
Several economic reports brought good news to investors on Thursday, but all eyes were on Friday’s monthly jobs report. Economists are expecting to see a loss of 110,000 jobs in August, an improvement over July's 131,000 job loss.
A key figure in the report will be private payroll data, which economists expect will rise by about 42,000 jobs. On Wednesday, a report from ADP and Macroeconomic Advisors showed the private sector lost 10,000 jobs from July to August, mainly from a drop of 40,000 jobs in the goods-producing sector.
A negative number would obviously be bad news, and if private payrolls rise as expected, "it's still somewhat disappointing," said Jeff Kleintop, chief market strategist at LPL Financial. A positive private sector number, however, won't guarantee a market rally, Kleintop said.
That's because if the number comes in at, say, 100,000 jobs, the market ends up in a Catch-22: a number too small to signal a true economic recovery, but too big to justify the Federal Reserve stepping in to stimulate the economy, as many market participants hope, he said.
"It might be bad news no matter what the data is tomorrow," Kleintop said.
Retailers gave the market a boost Thursday after many posted sales that beat expectations in Augustas consumers sought out bargains during the key back-to-school selling season. The consumer discretionary sector, home to retailers, was up 1.8 percent Thursday.
"It seems like retailers, the consumer discretionary sector, is really what’s lifting the market today," Kleintop said. "It's nice to see consumers are indeed spending."
In particular, department store chains outpaced analysts' estimates for the month. Shares of Nordstrom and Saks jumped more than 6 percent.
However, shares of teen retailers such as Aeropostale and Abercrombie & Fitch fell after reporting bleaker results.
PC maker Dell bowed out of the bidding war for 3Par after rival Hewlett-Packard raised its bid to $33 per share from $30 per share. Dell, which had initiated the bidding for 3Par, had previously raised its bid to $32 a share.
Apple shares were up slightly despite being removed from the short-term buy list by Deutsche Bank. The move comes a day after the computer maker announced a smaller, cheaper version of Apple TVto stream movies and television shows over the Internet, as well as new models of all its iPods.
Meanwhile, Samsung Electronics' first tablet computer, the Galaxy Tab, will go on sale in two weeks, turning up the heat on Apple's iPad.
AOL shares rose after the search engine firm said it renewed a five-year search agreement deal with Google .
Meanwhile Burger King soared more than 20 percent after the fast-food chain confirmed it is being soldto private equity firm 3G Capital in a deal worth $3.26 billion.
A JPMorgan Chase executive told Reuters the brokerage hasn't ruled out the possibility of buying credit-card provider Discover Financial or another payments processing network, even though he said such a deal would be "difficult."
Shares of Mariner Energy fell following news of a rig explosionin the Gulf of Mexico on a shallow-water platform owned by the company. Shares of rivals Halliburton and Baker Hughes rose.
Oil prices bounced above $74 a barrelfollowing the news.
Volume on the New York Stock Exchange was relatively light, with about 961 million shares changing hands. Advancers led decliners about 5 to 2.
In other economic news, the Labor Department reported weekly jobless claims fell by 6,000 to 472,000 for the week ended Aug. 28, better than the 475,000 forecast by economists polled by Reuters.
Pending home sales posted a surprising jump of 5.2 percentto 79.4 in July from June, according to The National Association of Realtors.
Also, the government reported nonfarm productivity fell 1.8 percent, more than previously estimated in the second quarter and the largest drop since the third quarter of 2006.
And the Commerce Department reported factory orders rose 0.1 percent, to first rise in three months.
On Tap This Week:
THURSDAY: Earnings after the bell from H&R Block.
FRIDAY: August jobs report; Fed's Lockhart speaks; ISM services index; earnings before the bell from Campbell Soup.
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