By Jonathan Cheng

U.S. stocks staged a late-session rally fueled by the consumer staples and materials sectors to post a third straight day of gains amid mixed data on jobs, retail sales and consumer lending.

The Dow Jones Industrial Average (DJI) finished up 121 points, or 1.2%, to 10,139, rebounding after a bruising pre-July 4 week. Since Tuesday, the Dow has gained 4.7%, putting the measure back around where it was at the beginning of last week.

The S&P 500 Index (SPX) rose 10 points, or 0.9%, to finish at 1,070. The Nasdaq Composite Index (RIXF) closed up 16 points, or 0.7%, to 2,175.

Investors were cheered by strong June retail sales amid good weather and aggressive promotions. Abercrombie & Fitch (ANF) jumped 7.8% after same-store sales rose 9%, beating analysts' estimates of 5.5%. Limited Brands (LTD) gained 2.2% after its sales rose 6%. Consumer staples strengthened as well with Costco Wholesale (COST) gaining 2.6%, and Walgreen (WAG) rising 3.6%.

"Frugality's still out there," said Christian Hviid, chief market strategist at Genworth Financial Asset Management, noting that weakness in the jobs market is likely still cutting into spending. "It's a needs-versus-wants spending environment we're back into."

In another positive sign, the Labor Department said initial claims for jobless benefits declined by 21,000 to 454,000 in the week ended July 3, more than the 12,000 drop expected by economists, though the previous week's level was revised upward, to 475,000 from 472,000.

But some analysts pointed out the numbers were misleading, since many longer-term unemployed workers had fallen off the rolls.

"These are volatile one-week numbers," said Sal Arnuk, co-head of equity trading at Chatham, N.J.-based brokerage Themis Trading LLC. "We still have millions of Americans out of work...I just don't see the real economy getting meaningfully better yet."

Arnuk attributed the strong trading days to computer-driven stock trading. "This is a big vacation week, but the computers and servers are still cranking them out," he said. "These are what are really driving the numbers, in our opinion."

Credit Suisse analyst Ana Avramovic wrote in a note to clients that, beginning last month, trading volumes by exchange traded funds were increasingly bunching up in the final half-hour of trading. With volatility on the rise, Avramovic said, "traders may be trying to adjust positions prior to the close in order to reduce the risk they hold overnight, and ETFs are a prime tool for quickly adjusting exposures."

Thursday's finish seemed to follow that pattern to a tee, with the Dow hovering around 10,065 before shooting up about 70 points.

The market rally survived a late-day release from the Federal Reserve that showed consumer credit falling in May for the fourth consecutive month. Consumer credit outstanding decreased at a seasonally adjusted annual rate of 4.5%, down $9.1 billion to $2.415 trillion, according to the report, far outstripping the $2.0 billion decline that economists had been expecting.

"There is simply no way to spin this data, nor the past few months, as anything other than confirmation that the consumer has not come roaring back," Dan Greenhaus, chief economic strategist with Miller Tabak, wrote in a note to clients.

Treasurys declined as economic optimism strengthened, with the 10-year yield (UST10Y) pushing above 3% for the first time in nine days to finish at 3.02%. Yields move inversely to prices. Crude-oil futures edged up to settle at $75.44 a barrel.

In other markets, the euro failed to garner any new direction from comments made by European Central Bank President Jean-Claude Trichet. The ECB kept its benchmark interest rate unchanged, as did the Bank of England at its monthly meeting. The euro was recently trading at $1.2692, up from $1.2679 late Wednesday in New York.

 
 
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