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US STOCKS-Wall St climbs as jobless claims hit 4 1/2-yr low

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* Sprint jumps on reports of possible Softbank deal

* S&P cuts Spain to just above junk rating

* Indexes up: Dow 0.3 pct, S&P 0.6 pct, Nasdaq 0.6 pct

(Updates to open)By Chuck Mikolajczak

NEW YORK, Oct 11 (Reuters) - U.S. stocks advanced onThursday after data showed initial jobless claims fell to thelowest level in more than four and a half years, suggestingimprovement in a key factor for economic growth.

The number of Americans filing new claims for unemploymentbenefits dropped by 30,000 to a seasonally adjusted 339,000,according to Labor Department data. Economists polled by Reutershad forecast claims edging up to 370,0000 last week.

The report follows last week's government report that showeda surprising drop in September's unemployment rate to 7.8percent.

"Claims looked pretty strong, definitely a big drop down.We're starting to hear noise about companies hiring, and that'swhat the market is waiting for," said Jordan Waxman, managingdirector Hightower Advisors in New York.

"Without labor market improvement, we can't get asustainable rally. The numbers seem to be moving in the rightdirection."

Stock futures were also supported by a note from Citigroup,which upgraded U.S. equities to "overweight," citing cheapequity valuations and aggressive central bank actions tostimulate the economy.

The benchmark S&P 500 index had shed 2 percent over theprior four sessions, its biggest four-day drop since late July,amid concern about the impact of slowing world growth oncorporate profits.

Weak global demand has heightened investor worry over thecorporate earnings season. As a group, S&P 500 companies'third-quarter earnings are expected to fall 2.9 percent from ayear ago, according to Thomson Reuters data for the firstdecline in three years.

The S&P 500 rose 2.4 percent in September but has dropped0.6 percent thus far in October as investors' focus has shiftedto stock fundamentals.

Other data showed the U.S. trade deficit widened in Augustto $44.2 billion. U.S. exports fell for a fifth consecutivemonth and imports declined slightly, hinting at weaker U.S. andglobal demand.

The Dow Jones industrial average

gained 42.92 points,or 0.32 percent, to 13,387.89. The Standard & Poor's 500 Index

gained 8.09 points, or 0.56 percent, to 1,440.65. TheNasdaq Composite Index

gained 19.25 points, or 0.63percent, to 3,071.03.Sprint Nextel Corp

shares jumped 13.5 percent to $5.72as the best performer on the S&P 500 after a source familiarwith the matter told Reuters Softbank Corp

, Japan'sthird-largest mobile carrier, is in talks to acquire a majoritystake in the No. 3 wireless carrier in the United States.

Clearwire Corp, in which Sprint holds a majorityinterest, surged 27.3 percent to $1.65. MetroPCS

shares

dropped 8.4 percent to $11.03 as a Softbank deal would rule outSprint making a counter-bid for the company which recentlyagreed to be acquired by Deutsche Telekom AG

.Fastenal Coclimbed 8.3 percent to $45.82 after thecompany posted third-quarter earnings.Winnebago Industries Inc

reported a higher quarterlyprofit and strong growth in its order backlog as demand for itsmotor homes grew. Shares gained 2.9 percent to $12.55.

(Additional reporting by Ryan Vlastelica; Editing by KennethBarry)

((charles.mikolajczak@thomsonreuters.com)(+1 646 2235234)(Reuters Messaging:charles.mikolajczak.thomsonreuters.com@reuters.net))

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