S&P Closes at 17-Month High Above 1,150

Stocks rallied in the final hour of trading Thursday, pushing the S&P to a 17-month high above 1,150. Banks finished strong, with Citi up over 5 percent.

The Dow Jones Industrial Average rose 44.51, or 0.4 percent, to close at 10,611.84. The S&P 500 climbed 0.4 percent to close at 1,150.24, and the Nasdaq advanced 0.4 percent to close at 2,368.46.

Stocks struggled to hold gains for any length of time today as investors were disappointed in the latest jobless-claims report. Banks rebounded from a midmorning dip amid signs that financial reform may get stuck in gridlock on Capitol Hill. Bailout stocks Citigroup and AIG continued to push higher.

Initial jobless claims fell by 6,000 last week; economists had expected claims to drop by 8,000.

"The worst of the weather effects have now faded from the claims numbers but the bottom line here is that there has been no net progress since late November," Ian Shepherdson, chief U.S. economist at High Frequency Economics, wrote in a note to clients.

"The wave of panic layoffs which struck after the Lehman failure has long gone, but the background pace of gross job losses is still too high for us to be confident meaningful payroll gains are in the offing," Shepherdson explained.

Separate reports showed the trade gap shrank 6.6 percent as oil imports dropped to their lowest level since February 1999, and mortgage rates dropped for a second straight week, remaining below 5 percent.

And the 30-year bond auction was met with solid demand: The high yield was 4.679 percent and the bid-to-cover ratio was 2.89.

Also offering cause for concern, A report out of China showed inflation rose to a six-month high, escalating fears that the economy is overheating and demand for commodities and other goods may start to slow.

The Dow was bobbing in and out of positive territory, with about half of the components higher and half lower.

Merck led the Dow, followed by IBM.

3M and Coke were at the bottom of the pack.

This came after stocks pulled off a gain Wednesday as financials rallied.

Financials started the day mostly higher, then turned lower before rising again as news off the Hill was that a bipartisan reform bill wasn't looking likely.

Senate Banking Committee Chairman Chris Dodd (D-Conn.) said he willgo ahead with his own financial-reform bill, which he will unveilon Monday, after talks on a bipartisan bill fell apart.

Citigroup gained over 5 percent today amid a fresh report of optimism about the company. This time it's a projection that it will earn $20 billion by 2012.

Part of the recent rally in Citi and other financials has been optimism about their ability to raise capital, coupled with market talk of government banning short-selling in banks in which it owns stake.

AIG pulled back, snapping a five-day rally that had pushed the stock up nearly 50 percent.

Regional banks have fared well in the past few days amid speculation that UK bank Barclays is looking to buy a U.S. retail bank. This morning, a handful of banks were higher, including Fifth Third and Regions Financial .

More M&A activity to report: BP has entered a $7 billion deal with US independent oil and gas producer Devon Energy. The UK oil major bought into a diverse and broad deepwater exploration portfolio in offshore Brazil.

Large-cap techs continued to be in favor: The Nasdaq was the best performer of the three major indexes, with solid gains in Research In Motion , Google and Oracle , among others.

The foreclosure rate has improved, falling 2.3 percent in February from January, according to a RealtyTrac report. But the number was up 6 percent from February 2009 and experts warned that the bad weather and procedural issues could delay foreclosures, pushing that number higher in the coming months.

In Greece, strikes against austerity measures all but paralyzed the country, grounding flights and closing schools.

Treasury Secretary Tim Geithner wrote a note to European regulatory officials, warning them not to tighten rules on hedge funds and private-equity companies as this would discriminate against U.S. entities, the Financial Times reported.

Volume was a little on the light side: About 8.1 billion shares changed hands on the three major exchanges, about 1.5 billion less than last year's daily average. Advancers outpaced decliners on the Big Board, roughly 3 to 2.

Still to Come:

FRIDAY: Gov'ts retail-sales report; consumer sentiment; business inventories; earnings from Ann Taylor

Send comments to cindy.perman@nbcuni.com.