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Stocks Log 3-Day Rally, Helped by Banks

Stocks finished at session highs Thursday, logging a three-day rally led by financials, after the ECB announced new liquidity measures to support banks in the euro zone and as investors waited for the crucial monthly non-farm payrolls report at the end of the week.

The Dow Jones Industrial Average rallied 183.38 points, or 1.68 percent, to finish at 11,123.33, above the psychologically-important 11,000 mark. Alcoa and BofA led the Dow gainers.

The blue-chip index has climbed more than 4 percent over the last three days.

The S&P 500 rose 20.94 points, or 1.83 percent, to end at 1,164.97. The Nasdaq jumped 46.31 points, or 1.88 percent, to close at 2,506.82.

The CBOE Volatility Index, widely considered the best gauge of fear in the market, finished below 37.

All 10 S&P sectors ended in the black, led by banks and materials.

“We’re still reacting to headlines—there’s relief that banks are going to be helped out by the ECB, but this is a short-term reaction…it’s going to be bad news for the financials longer-term,” said Brian Battle, vice president of trading at Performance Trust Capital Partners.

Europe’s leaders said they are prepared to help the region's weakest banks and want to recapitalize lenders to calm investor fears. And German Chancellor Angela Merkel said Europe should not hesitate to recapitalize its banks to prevent further damage to the euro zone during a news conference.

BofA , Citigroup and Morgan Stanley all rallied.

Meanwhile, the ECB held interest rates steadyat 1.5 percent as last month's rise in inflation offset pressure to respond to the euro zone's worsening debt crisis by easing borrowing costs.

Stocks initially struggled at the open after investors digested ECB President Jean-Claude Trichet's grim economic outlook.

"Ongoing tensions in financial markets and unfavorable effects on financing conditions are likely to dampen the pace of economic growth in the euro area in the second half of the year," said Trichet in a news conference following the rate announcement. "The economic outlook remains subject to particularly high uncertainty and intensified downside risks."

Belgian-French financial group Dexiashares have been halteduntil Monday because the Belgian markets regulator said the group needed to provide more details about the pending sale of its Luxembourg arm. The stock was last trading down 17 percent.

On the economic front, weekly jobless claims gained less than expected last week, climbing 6,000 to a seasonally adjusted 401,000, according to the Labor Department from a revised 395,000 in the prior week. Economists had forecast claims rising to 410,000, according to a Reuters poll.

The jobless claims news comes ahead of the crucial monthly government jobs report on Friday. Non-farm payrolls are expected to have increased 60,000 in September, according to a Reuters poll, after being flat in the month prior.

“It’s all about jobs,” said Todd Schoenberger, managing principal at The BlackBay Group. “The employment number will set the tone for the rest of the day tomorrow.”

Apple stock finished mostly flat, a day after the death of company co-founder Steve Jobs.

All over the world company leaders, officials as well as ordinary people expressed their sadness at the death of Jobs, who was considered one of the greatest CEOs of his generation and a legendary visionary and entrepreneur.

And the iPhone maker once again surpassed ExxonMobil to become the most valuable company in America with a market cap of $354.4 billion versus the oil giant's $353.3 billion. Earlier this week, the tech giant unveiled its new iPhone 4S with upgraded features.

Among major energy firms, JPMorgan cut its rating on ExxonMobil and Chevron to "underweight" from "neutral."

Meanwhile, most U.S. retailers posted solid chain-store sales results for September, as consumers remained resilient despite weakening consumer confidence.

Target , Limited Brands and teen apparel store The Buckle were among the best performers, posting strong gains that beat estimates.

Constellation Brands jumped after the wine maker posted higher-than-expected earnings, thanks to price increases. The company also raised its full-year outlook.

—Follow JeeYeon Park on Twitter: twitter.com/JeeYeonParkCNBC

Coming Up This Week:

FRIDAY: Non-farm payroll, wholesale trade, consumer credit, Sprint's 4G plans unveiled

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