Dow Ends Up Over 1%, Led by Financials

Stocks logged their best day in a couple of months Thursday, led by the financials, after fears of contagion from the European debt crisis eased and U.S. jobless claims fell. Some solid earnings reports also helped.

The Dow rose 122.05, or 1.1 percent, to close at 11,167.32, led by American Express , Bank of America and Pfizer .

The S&P 500 gained 1.3 percent and the Nasdaq advanced 1.6 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, ended below 19.

This came after stocks logged their worst drop in monthson Tuesday, then started to claw back some gains yesterday.

“I still expect this two-step forward, one-step back market,” said Steven Stahler, president of Stahler Investment Group. “We’re seeing more uncertainty and greater headwinds down the road so investors need to be proactive.”

Despite the headwinds, Stahler said he still sees companies that are leaders in their spaces buying back shares and increasing dividends.

News that Greece is planning some strong cost-cutting measures to secure the aid package from Europe and the IMF, got the market off to a strong start.

Offering another boost was news that U.S. jobless claims dropped by 11,000 last week, an encouraging sign for the economy, though it wasn't as big a decline as expected.

The dollar fell against the euro, retreating from a one-year high the previous day on hopes a bailout plan for Greece was imminent and would help it avoid a debt restructuring.

Oil prices rose to above $85.17 a barrel on encouraging signs of U.S. fuel demand, while gold prices fell to $1,168.40 an ounce.

Investors were clearly feeling the recovery optimism today: Financials were the best-performing sector on the S&P, followed by industrials and consumer discretionary.

Goldman Sachs shares rose 2.1 percent amid expectations that the company will settle its fraud case with the SEC soon.

Overall, banks continued to rebound after Tuesday's selloff, with Bank of America and Citigroup up more than 2 percent.

The Senate finally started its formal debate on financial reform, with a slew of amendments to the bill expected. The first amendment will call for toughening of the rules it proposes for over-the-counter derivatives, potentially forcing banks to spin off their highly-lucrative swaps trading desks.

President Obama is urging quick passage of the bill, but Republicans are vowing to implement the changes they want to the legislation.

Shares of Palm soared 26 percent following news that it's being acquired by Hewlett-Packard in a deal worth roughly $1 billion. But HP shares slipped.

Elsewhere in the hand-held sector, Apple and Research In Motion rose.

Motorola shares shot up 3.5 percent after the phone maker reported a surprise profit and projected it would beat expectationsfor the current quarter.

Baidu shares soared 14 percent after the Chinese Internet search firm blew past profit forecasts on Wednesday afternoon as advertisers flocked to its new keyword system amid Google’s departure from China.

ExxonMobil shares slipped after the oil giant's earnings fell short, while rival ConocoPhillips rose after the firm reported a sharply higher profit.

Chevron is scheduled to report earnings before the bell on Friday.

Meanwhile, U.S,-traded shares of BP lost more than 8 percent after new estimates from the Coast Guard indicated that the damaged oil well in the Gulf of Mexico is leaking up to five times more than the previous estimate, due to an additional breach in the oil well was discovered.

Procter & Gamble beat earnings expectations but its shares slipped.

Visa shares slipped, even as the credit-card provider beat earnings expectations and raised its forecast.

Aetna shares jumped after the health insurer posted better-than-expected profitas it spent less premium revenue on medical costs and it raised its full-year forecast.

Aetna is the latest health insurer to easily top profit expectations this quarter following stronger-than-expected reports from WellPoint and UnitedHealth although worries over the implementation of U.S. healthcare reform has dampened investor enthusiasm.

Dendreon shares soared 27 percent after the company won FDA approval to sell Provenge, a vaccine to treat men with advanced prostate cancer.

Merck shares rose 2 percent. The pharma giant promoted its global head of pharmaceuticals, Kenneth Frazier, in a move likely to put him in line to succeed chief executive Richard Clark when he retires next year.

Volume was slightly higher than usual, with about 1.41 billion shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, more than 3 to 1.

Long-dated Treasurys rose to session highsafter the 7-year auction. The $32-billion sale fetched a high yield of 3.210 percent and the bid-to-cover ratio was 2.82, following a weak auction during Tuesday and Wednesday’s sales of 2-and 5-year notes, respectively.

Still to Come:

FRIDAY: Berkshire Hathaway annual meeting; AT&T shareholder meetings; GDP; consumer sentiment; Earnings from Chevron

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