Stocks rebounded after a two-day sell-off, led by financials as an unexpected drop in jobless claims and merger buzz charged the market.
The Dow Jones Industrial Average squeaked out a gain of 24.43 points, or 0.2 percent, to close at 12625.62. The S&P 500 rose 0.3 percent, while the tech-heavy Nasdaq added 0.7 percent.
Oil retreated to around $130 a barrel after earlier topping $135 a barrel, and energy was the only decliner among 10 key S&P sector indexes.
"A big overreaction to oil and the news that's surrounding oil is what drew the market down in the last couple of days," said Yiorgo Aretos of the TMP Group. Likewise, it's investors and speculators that are bidding up the market today, he said.
The market ran up pretty fast in the past 10 days, Areto said, but added that TMP has the market valued at Dow 12800, so there's still room for gains next week.
Jobless claims dropped by 9,000last week; economists had expected a slight uptick. The four-week moving average, however remained at a more than four-year high, climbing to 372,250.
Stocks held onto modest gains even after a report showed a significant drop in home prices during the first three months of the year. Home prices fell 1.7 percentin the first quarter from the prior quarter and were down 3.1 percent from a year earlier, according to Ofheo's seasonally-adjusted purchase-only index. Both drops were the lowest on record.
California, Nevada and Florida logged the biggest price declines. Eight states saw prices drop more than 3 percent during the quarter; prices plunged 8 percent in California.
Federal Reserve Governor Randall Kroszner said the mortgage market is going to be slow to recover.
"Recovery in the mortgage market will take time and will require more market and regulatory discipline," Kroszner said in remarks prepared for delivery to a bankers' conference this morning on Amelia Island, Fla.
Financials rebounded after taking a pounding in the past two sessions, climbing 0.9 percent. Citigroup jumped 3.2 percent, making it the top gainer on the Dow.
Crude oilpulled back to settle at $130.81 a barrel after earlier jumping above $135 a barrel as supply concerns persisted. Those concerns were exacerbated by numbers released Wednesday by the Energy Information Administration showing an unexpected decline in crude reserves.
"There are so many factors that can affect the price of oil ... We believe that oil has no ceiling," Aretos said. "There is, however, something to be said for market saturation and for a sustainable price for consumers, and we do not believe that the current economy could support oil prices above $150," Aretos said.
Shorts may have finally succeeded in clamping down on energy stocks after several failed attempts this week; energy was the biggest decliner among 10 key S&P sector indexes, falling 1 percent. Dow components ExxonMobil and Chevron skidded more than 1 percent.
Ford shares skidded 8.2 percent after the auto maker lowered its profit outlook, saying it no longer expects to return to profitability in 2009. The company also plans to cut North American production.
Rival General Motors was the biggest decliner on the Dow, sliding 3.6 percent.
Pfizer shares , dropped 1.2 percent to $19.78, its lowest close in more than 10 years, after researchers late Wednesday reported some disturbing physical side effects, including blurred vision and loss of consciousness, from the company's anti-smoking drug Chantix. These physical side effects, on top of the already-known psychological side effects that incude suicidal thoughts, were enought to prompt the FAA to ban use of the drug by pilots and air-traffic controllers.
Calpine shares surged 8.1 percent after power company NRG Energy made an unsolicited $11-billion bidfor its rival. NRG fell 5.1 percent.
Calpine, which emerged from bankruptcy earlier this year, said it was reviewing the bid to determine if it was in the best interests of its shareholders. It said it received the unsolicited proposal from NRG on May 14.
Shares of Suntech Power Holdings , which have been under intense pressure all year, failed to hold on to early gains after the company reported better than expected quarterly earnings, citing swelling demand for renewable energy sources.
Quarterly earnings reports continued to wind down, but the market was watching news from a few retailers.
Women's clothing company Ann Taylor reported lower quarterly profit due to restructuring costs, but earnings of 47 cents a share were still slightly ahead of analyst estimates.
Barnes & Noble reported its loss widened and slashed its full-year sales forecast, citing the tough retail environment. The bricks-and-mortar bookseller also confirmed that its mulling "a transaction" with rival Borders Group .
Shares of Children's Place jumped more than 16 percent after the retailer beat expectations but said its outlook remains cautious as most of its business is logged in the second half.
Still to Come:
THURSDAY: Earnings from Gap; Libertarians choose presidential candidate
FRIDAY: Existing-home sales; Bond market closes early for Memorial Day holiday
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