By Donna Kardos Yesalavich
Stocks mounted a modest afternoon rally to close near the day's highs as investors awaited monthly jobs data on Friday that will shed more light on the economic recovery.
The Dow Jones Industrial Average (DJI) finished up 50.33 points, or 0.49%, at 10319.80. The Nasdaq Composite (RIXF) rose 1.06% to finish at 2200.01 while the Standard & Poor's 500-stock index (SPX) gained 0.91% to 1090.08.
Better-than-expected housing and retail data provided some encouragement to investors, but caution prevailed following Wednesday's big run-up.
If the government's jobs report falls short of already guarded expectations, "that's going to reverse what happened" on Wednesday, when stocks jumped 255 points, said John Canally, economist and investment strategist at LPL Financial.
Canally said that while economic data has come in mixed recently, "the preconditions for a double dip are not here." Strong manufacturing data on Wednesday "puts the burden of proof back on the double dippers," he said.
Retailers led Thursday's small climb after sales for the back-to-school buying month of August largely came in better than expected. Nordstrom (JWN) jumped 8%, Limited Brands (LTD) advanced 6% and J.C. Penney (JCP) rose 3.2%.
Homebuilders were also strong, as investors were heartened by an unexpected increase in pending sales of used homes, a surprising reversal after the index fell two months in a row following the April 30 expiration of a tax credit for buyers. D. R. Horton (DHI) rose 2.5%, PulteGroup (PHM) added 2.4% and Lennar (LEN) climbed 1.8%.
However, the retail-sales reports came on easy comparisons, and Lawrence Yun, chief economist for the National Association of Realtors, warned that the housing market's recovery would still be a long one.
The Dow traded in a tight range of just over 50 points for most of the day before breaking higher in the final hour of trading, led by consumer discretionary and industrial stocks. More defensive sectors, including utilities, telecommunications and health-care stocks, were the three worst performers of the day.
Thursday's data had its disappointments. U.S. factory orders rose less than expected in July, while the level of U.S. workers filing new jobless claims last week suggested lingering troubles in the job market, and second-quarter productivity fell more than previously thought.
"We're sort of stuck in the mud," said Barry Knapp, managing director, equity research at Barclays Capital. While he noted that the housing and retail sales data topped expectations, Knapp said, "nothing in the data to me points to a change in trend. It points to continued slow growth."
Meanwhile, the government's monthly employment report loomed. Unemployment currently stands at 9.5%, and that figure Friday is expected to creep up to 9.6% as U.S. employers drop another 110,000 people off the payrolls.
"The recovery is stumbling along at this point," said Edmund Hyland, managing director and a global investment specialist for JPMorgan Private Bank's southeastern region. "It's been carried by strength in the corporate sector. What the market would like to see is that it starts to translate to jobs because consumers still account for a significant portion of GDP."
Volume was low, with just over 3.8 billion shares changing hands in NYSE Composite trading. The 2010 daily average is about 5 billion shares, although the August average was just over 4 billion shares.
The euro (CUR_EURUSD) edged up to $1.2822, from $1.2803 late Wednesday, after the European Central Bank kept its benchmark interest rate unchanged at a record low 1%, as expected. ECB President Jean-Claude Trichet said the ECB would extend its tool box of additional bank funding on a "full allotment" basis, citing continued uncertainties in the economy.
Treasurys were mixed, with an increase in the two-year note pushing its yield down to 0.50% while a decline in the 10-year note lifted its yield up to 2.63%. Crude-oil futures edged up to about $75 a barrel, while gold futures also advanced.
Among stocks in focus, Burger King Holdings (BKC) soared 25% to $23.59 as the fast-food chain confirmed that 3G Capital has signed a deal to buy the company for $24 a share.
Meanwhile, computer maker Dell (DELL) withdrew from the bidding war for 3PAR (PAR), surrendering the storage maker to rival Hewlett-Packard (HPQ) after the tech giant lifted its offer to $2.1 billion. 3Par, which makes storage products used in cloud computing, accepted H-P's offer, valuing the company at $33 a share. H-P gained 1.2%, while Dell rose 2% and 3PAR climbed 2.5% to $32.86.