NEW YORK: US stocks closed mostly higher but down from their highs of the day Thursday following three straight days of losses.
In other markets: Japan's Nikkei stock average fell 1.4 percent.
Britain's FTSE 100 rose 0.1 percent.
Germany's DAX index rose 0.8 percent.
France's CAC-40 rose 1 percent.
In the US investors piled back into financial and health care companies and moved out of industries like technology that had been leading the market.
Several upbeat economic reports encouraged investors after a slide earlier this week that dragged the benchmark Standard & Poor's 500 index down 3.8 percent. Investors also sold Treasurys, feeling less need for the safety of government debt because of the signs of economic improvement.
A private research group said its forecast of economic activity rose more than expected in May, marking a second straight gain after seven months of declines.
And the government said the overall number of people drawing unemployment benefits fell last week for the first time since early January.
The drop broke a string of 21 straight increases.
Separately, the Philadelphia Reserve Bank said manufacturing activity picked up in the mid-Atlantic region.
The reports helped reassure investors that a recovery is still emerging.
But analysts caution that there may still be more air to be let out of the market's huge advance since early March, which added as much as 40 percent to the S&P 500 index.
"I don't think that this rally is sustainable," said Scott Armiger, portfolio manager at Christiana Bank & Trust of Thursday's move.
"I still think we have to give up a little bit more."
The Dow Jones industrials rose 58.42, or 0.7 percent, to 8,555.60, its biggest one-day gain in two weeks. The Dow had been up 98 points. The S&P 500 index rose 7.66, or 0.8 percent, to 918.37. The Nasdaq composite index slipped 0.34, or less than 0.1 percent, to 1,807.72. In other trading, the Russell 2000 index of smaller companies rose 2.45, or 0.5 percent, to 509.48. Advancing shares outnumbered decliners by about 3-to-2 on the New York Stock Exchange, where consolidated volume came to 4.58 billion shares compared with 5.62 billion Wednesday.
The Dow had been up 98 points.
The S&P 500 index rose 7.66, or 0.8 percent, to 918.37.
The Nasdaq composite index slipped 0.34, or less than 0.1 percent, to 1,807.72.
In other trading, the Russell 2000 index of smaller companies rose 2.45, or 0.5 percent, to 509.48.
With trading light as the summer slowdown begins, analysts say more volume is needed in order to move the market significantly in either direction.
Shares of major banks rose as Treasury Secretary Timothy Geithner appeared before the Senate Banking Committee, defending the regulatory overhaul announced the day before by President Barack Obama.
He also said he's seen evidence of healing in the financial industry.
Financial shares had been under pressure because of anxiety about the banking regulations being planned by the Obama administration in response to the credit crisis.
Geithner defended the government's proposals, which call for the Federal Reserve to become a super-regulator that would oversee large financial firms whose failure could reverberate throughout the economy.
"I think the investing public likes the fact that there's going to be more regulation in some areas where it was lacking," said Joe Keetle, senior wealth manager at Dawson Wealth Management.
The comments came a day after another milepost of recovery in the financial industry as 10 major banks repaid $68 billion in government rescue loans.
Among financial stocks, JPMorgan Chase & Co. added $1.44, or 4.4 percent, to $34.17, while Goldman Sachs Group Inc. gained $3.36, or 2.4 percent, to $143.09.
Health care shares added to gains logged on Wednesday as the Senate continued work on a major revamp of the health care system.
Pharmaceutical maker Pfizer Inc. rose 34 cents, or 2.3 percent, to $14.92, while Merck & Co. jumped 88 cents, or 3.6 percent, to $24.65.
Tech stocks lost ground after SanDisk Corp. was downgraded by a Needham analyst.
Sandisk fell 92 cents, or 6.1 percent, to $14.13. Intel Corp. fell 27 cents to $15.87, while International Business Machines Corp. fell 67 cents to $106.33.
Traders are expecting higher levels of volatility because Friday brings a quarterly "quadruple witching," which marks the simultaneous expiration of a number of different options contracts.
Analysts say stocks are more likely to push higher during the expirations, which often see heavy and fractious trading.
Bonds sold off following the economic reports, pushing the yield on the benchmark 10-year Treasury note up to 3.81 percent from 3.69 percent late Wednesday.
Bond prices tend to rise during times of economic duress as investors seek safety, then fall back when signs of recovery emerge.
The dollar was mixed against other major currencies, while gold prices fell.
Light, sweet crude rose 34 cents to settle at $71.37 per barrel on the New York Mercantile Exchange. - AP
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