By Wallace Witkowski and Anora Mahmudova, MarketWatch

Shanghai index gains for first time in six sessions; oil jumps

U.S. stocks surged Thursday, building on the previous session's sharp rebound and erasing weekly losses as China showed signs that measures to stabilize its economy and stock market may be taking hold.

A larger-than-expected upward revision to the U.S. gross domestic product data, showing that U.S. economy grew at a faster 3.7% in the second quarter (http://www.marketwatch.com/story/us-economy-looks-much-stronger-after-upward-revision-to-gdp-report-2015-08-27), helped lift the spirits of investors that have been unsettled by a spate of volatility. Weekly data on jobless claims (http://www.marketwatch.com/story/us-jobless-claims-fall-6000-to-271000-2015-08-27-8913022), which pointed to continued strength in the labor market, added to the optimism.

"Today's revision means the U.S. economy is growing faster and consumer spending portion points to a stronger growth in the second half of the year. With this kind of growth, we expect $135 earnings per share by the end of 2015," said Phil Orlando, chief equity strategist and senior portfolio manager at Federated Investors.

That translates to a 35% rise in the S&P 500 from its current level, according to Orlando.

Stocks were busy carving out new intraday highs as the session progressed into the afternoon.

The Dow Jones Industrial Average climbed 345 points, or 2.1%, to 16,631, with all 30 members of the blue-chip index trading higher. The S&P 500 rose 45 points, or 2.3% to 1,986, with all 10 of the index's main sectors trading higher. The Nasdaq Composite surged 111 points, or 2.4% at 4,809.

For the week, The Dow is up 1%, the S&P is 0.7% higher, and the Nasdaq is up 2.2%.

The implied volatility on the S&P 500--the so-called fear gauge--as measured by the CBOE Volatility Index fell 17% to 25.26.

Global equity markets rallied following a 5.3% surge in the Shanghai Composite overnight, snapping a losing streak that wiped out nearly a quarter of its value in a week. That jump cheered investors world-wide, as fears about China have been blamed for much of the recent intense selling around the globe.

Even so, some China watchers are questioning what drove the move and suggest the Chinese government intervened again. Read more: China's mystery rally (http://www.marketwatch.com/story/beijing-loch-ness-monster-eyed-in-mystery-of-china-rally-2015-08-27)

Investors had fled from stocks largely from a lack in confidence of the Chinese government's handling of its financial markets, and the perception that the government was spending all its political capital on propping up the stock market rather than investing in its domestic economy, said John Canally, chief economic strategist for LPL Financial.

"They're clumsy and not used to reacting to markets," Canally said. "They're new to this."

The rally in U.S. stocks implies that investors are treating the recent actions out of China much like they did the 1998 Asian markets crisis, when U.S. stocks sold off initially, then bounced back, he said.

On Wednesday, the S&P 500 jumped 3.9% as the Dow surged 619 points (http://www.marketwatch.com/story/us-stocks-on-track-to-rise-as-china-tries-fresh-stimulus-2015-08-26). The benchmark S&P stands 8.9% off its May record close, after finishing down 12.4% from that level on Tuesday.

Other markets:Asian markets rebounded (http://www.marketwatch.com/story/asian-markets-rebound-boosted-by-central-banks-us-data-2015-08-27), while European stocks also traded higher (http://www.marketwatch.com/story/european-stocks-bounce-up-tracking-rallies-in-asia-us-2015-08-27).

Crude oil (http://www.marketwatch.com/story/oil-rebounds-by-over-2-as-stocks-recover-2015-08-27) climbed 9%, while gold was slightly lower. The dollar (http://www.marketwatch.com/story/dollar-steady-against-yen-as-risk-sentiment-improves-2015-08-27-11033527) strengthened by nearly 1%.

Economic news:The U.S. economy grew at a faster 3.7% annual pace (http://www.marketwatch.com/story/us-economy-looks-much-stronger-after-upward-revision-to-gdp-report-2015-08-27)in the second quarter, up from the initial estimate of growth at a 2.3% clip, the Commerce Department said Thursday.

New applications for U.S. unemployment benefits fell by 6,000 to 271,000 in the seven days ended August 22, the first decline after four straight weekly gains.

Pending home sales rose 0.5% in July after an upward revision to June's numbers, the National Association of Realtors said Thursday.

The weekend will bring the Federal Reserve's annual conference in Jackson Hole, Wyo., where the central bank might offer fresh clues (http://www.marketwatch.com/story/fischers-jackson-hole-speech-could-be-the-signal-whether-hike-will-come-2015-08-20) about a possible interest-rate hike. On the Fed front on Thursday, Kansas City Fed President Esther George said the market turmoil "complicates" any decision to raise rates, but she repeated her long-held call for a rate increase (http://www.marketwatch.com/story/kc-feds-george-repeats-call-for-rate-hikes-but-says-market-turmoil-complicates-decision-2015-08-27).

Individual movers and shakers:Freeport-McMoRan, Inc.(FCX) cut its capital spending plans for 2016 by 29% and said it would also cut jobs. Shares jumped 29% to lead the S&P 500 gainers.

Tesla Motors Inc.(TSLA) shares jumped 8% after Consumer Reports gave the electric car maker's Model S sedan a 103-point score out of 100 (http://www.marketwatch.com/story/tesla-model-s-scores-another-best-in-class-from-consumer-reports-2015-08-27).

Shares in St. Jude Medical(STJ) initially surged on news that Abbott Laboratories(ABT) might buy out (http://www.marketwatch.com/story/st-jude-medical-shares-surge-13-on-report-abbott-labs-prepping-25-bln-bid-2015-08-27) the maker of medical devices, but then gave up much of its gain, trading 4.8% higher.

Tiffany & Co.(TIF) slumped 1.6% after its disappointing quarterly earnings report (http://www.marketwatch.com/story/tiffanys-stock-drops-after-profit-and-sales-miss-outlook-disappoints-2015-08-27). Dollar General Corp.(DG) slid 3.8% following its quarterly results (http://www.marketwatch.com/story/dollar-general-profit-tops-estimates-but-sales-lag-2015-08-27).

--Victor Reklaitis in London contributed to this report.

 

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(END) Dow Jones Newswires

August 27, 2015 13:09 ET (17:09 GMT)

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