Stocks had their best day in weeks Thursday after solid demand for another Treasury auction and encouraging earnings reports from retailer Bed, Bath & Beyond and homebuilder Lennar.
The Dow Jones Industrial Average snapped a four-day losing streak, gaining 172.54, or 2.1 percent, to close at 8,472.40. The S&P 500 added 2.2 percent and the Nasdaq gained 2.1 percent.
For both the Dow and Nasdaq, it was the best one-day point and percentage gain since June 1.
Stocks had opened lower after weekly jobless claims came in higher than expected but quickly rebounded.
Solid demand for yet another Treasury auction boosted confidence: The U.S. sold $27 billion of seven-year notes with a yield of 3.329 percent. This was the latest sign that the government isn't having any trouble selling its debt, following strong demand for auctions of 2-year and 5-year notes in the past two days. In all, the government sold a record $104 billion worth of debt this week.
And investors were somewhat relieved when Federal Reserve Chairman Ben Bernanke's testimony on Capitol Hill ended.
The Fed chairman testified on Capitol Hill today, saying he didn't bully Bank of Americainto buying Merrill.
"I did not tell Bank of America's management that the Federal Reserve would take action against the board or management" if they decided to invoke a clause in the acquisition contract in an attempt to stop the deal, Bernanke told the House Oversight and Government Reform Committee. "Moreover, I did not instruct anyone to indicate to Bank of America that the Federal Reserve would take any particular action under those circumstances."
Bank of America stock ended flat at $12.35 after Citigroupslashed its price target on the stock to $18 from $20, predicting a big writedown on Merrill Lynch debt and Bank of America announced that it has raised over $12 billion in fresh capital.
Jefferies Group advanced 6.6 percent afte the investment bank posted earnings and outlook that beat expectations.
Overall, bank stocks were mostly higher, with the SPDR financial ETF finishing up 2.2 percent.
Retail stocks were among the day's biggest winners after Bed, Bath & Beyond reported a surprise profit as its results were helped by cost-cutting measures.
Bed, Bath & Beyond shot up 9.5 percent. JCPenney jumped 6 percent and Home Depot gained 3.9 percent.
Rental-car giant Hertz surprised the market by posting a 2009 profit and its CEO told CNBC that it was buying new cars as fast as it couldto meet surging demand. Shares rose 16 percent.
Homebuilder stocks also rose, with shares of Lennar soaring 18 percent, after the company posted a wider-than-expected loss but reported an increase in new home sales and orders.
Nike shares skidded 3.3 percent after the sports-gear maker posted a surprise increase in profit but said its forward orders dropped 12 percent.
And Kimberly-Clark shares gained 1.9 percent after the company,which makes Kleenex tissues and Huggies diapers, announced plans to slash 1,600 jobs, or about 3 percent of its workforce, and incur $150 million in charges in an effort to boost its competitive edge.
Tech stocks continued to outperform the broader market after Oracle beat earnings expectations and reported record profit margins earlier in the week.
Microsoft shares rose 1.4 percent as the software giant announced plans to slash the price of its new Windows 7 operating system by 8 percent.
Elsewhere in the sector, Yahoo gained 0.5 percent after its shareholders meeting and Analog Devices rose 4.5 percent after
Shares of chip maker Micron Technology rose 3.1 percent and smart-phone maker Palm gained 0.6 percent ahead of their earnings, which came out after the closing bell.
Palm shares rallied after-hours after the company posted a narrower-than-expected lossamid strong demand for the Palm Pre, which just debuted in June. The gadget's popularity is expected to be more fully reflected in the current quarter's results.
Micron Technology, however, saw its shares decline after-hours after posting its 10th consecutive loss.
General Motors shares ticked higher to $1.16 after a bankruptcy judge ruled that a group representing GM retirees can't form an official committeeto negotiate with the automaker.
American International Group shares gained after the insurer said it will cut its federal loan burden by $25 billion by giving the government a preferred stake in two units that will be spun off from the insurance giant.
In the day's economic news, initial jobless claims jumped by 15,000 to 627,000 last week, higher than the expected 600,000 and indicative that the unemployment burden continues to pressure the economy.
"While many analysts pointed to the drop in continuing claims reported last week as evidence of a healing labor market, we are not so sanguine," Joshua Shapiro, chief U.S. economist at MFR, wrote in a note to clients. "With initial claims still very high at above 600K, it is unlikely that new hiring has picked up in any meaningful fashion. More probable is that long-term unemployed are starting to fall off the rolls as the duration of their unemployment benefits reaches the statutory limit."
And the economy contracted 5.5 percent, the Commerce Department said in its final reading on first-quarter GDP. That was a smaller contraction than the 5.7 percent initially reported.
After a two-day meeting, the Federal Reserve said Wednesday that the "pace of economic contraction is slowing" but that it "continues to anticipate that economic conditions are likely to warrant exceptionally low levelsof the federal-funds rate for an extended period."
The Fed also said it would "employ all available tools to promote economic recovery and to preserve price stability." Policy makers didn't introduce any new debt buyback plans.
Still to Come:
FRIDAY: Personal income/spending; consumer sentiment; Earnings from KBHome
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