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Stocks Wobble After Service-Sector Report

Major indexes pushed higher Thursday as bank and gold shares advanced. But gains were modest as investors were disappointed that the service sector didn't move into expansion mode.

The ISM reported its service-sector index rose to 48.4in August from 46.4 in July, slightly beating expectations but still at the 50 mark, which would indicate expansion in the sector.

After the ISM's manufacturing gauge topped the 50 mark, some analysts were expecting the services index to cross that milestone. When it didn't, stocks sold off but then tried to claw higher.

The last time the services gauge was at 50 was September 2008.

"While clearly signaling economic conditions that are nowhere near as bad as late last year ... we do not expect this [service-sector] indicator to flash a sustained “all-clear” signal anytime soon," Joshua Shapiro, chief U.S. economist at MFR Inc., wrote in a note to clients. "Indeed, the less impressive recovery in this index compared to the ISM manufacturing index underscores the inventory-led nature of the current economic bounce."

Meanwhile, initial claims for state unemployment insurance benefits fell 4,000 to a seasonally adjusted 570,000 in the week ended Aug. 29 from an upwardly revised 574,000 the prior week, the Labor Department said. The number was roughly in line with estimates, but the market was shaken a bit by the revision and a slight move higher in the moving average, the four-week metric that smoothes out weekly volatility.

The key data point this week will be the August jobs report, due out on Friday. Economists expect to see that 233,000 jobs were lost, slightly fewer than the 247,000 lost in July, and that the unemployment rate ticked up to 9.5 percent.

"[W]e reckon Friday's official number will be about 250K. That's still terrible, but it does mean that the trend towards smaller net job losses continues," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients. "The move to payroll stability ... is some way off yet, though."

Financials rebounded after taking a beating on Wednesday. Bank of America was one of the biggest gainers on the Dow. Citigroup and Wells Fargo also posted solid gains.

CIT Group and AIG jumped about 5 percent.

Fannie Mae and Freddie Mac were up more than 10 percent as well.

It was a mixed bag of August same-store sales numbers from retailers.

Costco , Target and Gap were among the retailers that beat expectations.

Abercrombie and Fitch missed its target with a 29-percent drop in sales as teen retailers continued to get hammered.

Family Dollar also missed its target, sending its shares lower.

And gold stocks were shining once again as gold prices hit a three-month high in Europe.

Randgold Resources, Royal Gold and Jaguar Mining continued to rise after gaining more than 10 percent Wednesday.

So far, it hasn't been a September to remember on Wall Street. With two days in the books, the month is living up to its historic billing as the worst month of the year for stock investors, though Wednesday's losses were relatively small.

Investors may take heart from a new report by JPMorgan, which is raising its GDP growth projection for the current quarter to an annual rate of 4 percent from the prior 3 percent, and is also raising its fourth quarter estimate to 3 percent from the prior 2.5 percent.

Investors will watch shares of drugmaker Sepracor, as Japanese pharmaceutical company DSP announces a deal to buy Sepracor for $23 per share, or $2.6 billion. The stock had run up considerably over the past few sessions as word of talks between the two companies spread.

- Peter Schacknow contributed to this article.

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