More signs that the economy is creeping toward recovery encouraged investors to move further into stocks — but at a cautious pace.
Stocks rose moderately Thursday in very light volume. There were no dramatic economic reports, but a smattering of positive data convinced investors to take more chances on stocks. Financials were particularly in demand after a report quoting American International Group's CEO as saying the company will repay its bailout loans from the government.
News from the Philadelphia Federal Reserve of a pickup in mid-Atlantic manufacturing also lifted the market, having offset a weaker-than-expected Labor Department report on first-time claims for unemployment.
"I think the headline news just gave more comfort to those who have been and remain of the view that the recession is not only ending but that we are on the cusp of a V-shaped recovery," said David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates.
Stock prices drifted higher through the afternoon. The market seemed to be shaking off some of the fears that had triggered selling in what has been a back-and-forth week, including sharp losses in Chinese shares and concerns about consumer spending.
The Dow Jones industrials rose 70.89, or 0.8%, to 9,350.05. The Standard & Poor's 500 index rose 10.91, or 1.1%, to 1,007.37, while the Nasdaq composite index gained 19.98, or 1.0%, to 1,989.22.
But there were still signs of caution. The low volume, typical for an August day, meant investors weren't piling into the market. It also meant that price movements could be exaggerated.
Consolidated volume on the New York Stock Exchange came to 5 billion shares, up from 4.35 billion on Wednesday. Rising stocks outpaced falling stocks by about 3 to 1 on the NYSE.
Treasury prices closed mixed, having regained some ground from earlier losses, another sign that investors are being careful. Government debt is considered one of the safest places to stash money. The yield on the benchmark 10-year note fell to 3.43% from 3.46% late Wednesday.
In other trading, the Russell 2000 index of smaller companies rose 7.03, or 1.3%, to 568.68.
The dollar was mixed against other major currencies, while gold prices fell.
Crude oil fell 92 cents to finish at $72.91 a barrel on the New York Mercantile Exchange.
Investors were encouraged by the Philadelphia Fed's news that factory activity in the mid-Atlantic region jumped back into positive territory in August, reaching its highest level since November 2007, before the recession began. The report echoed findings earlier this week in a similar survey for the New York region.
Meanwhile, the Conference Board's economic forecasting gauge, the index of leading economic indicators, rose for the fourth straight month during July, suggesting that the recession will end this summer, if it hasn't already.
The two reports helped counter news from the Labor Department that new claims for unemployment benefits rose unexpectedly to 576,000 last week. Economists had predicted a decline.
Financial stocks, and in turn the rest of the market, got a boost after Bloomberg News quoted AIG's new CEO, Robert Benmosche, as saying the company would repay its bailout loans. The company, which the government saved from collapse nearly a year ago, got a rescue package worth up to $182.5 billion.
AIG shot up 21.3%, rising $5.66 to $32.30. Citigroup , another recipient of a large bailout package, rose 35 cents, or 8.5%, to $4.48.
The market has been preoccupied with consumer spending during the last week, and signs that consumers won't become more free with their money contributed to the market's down days. But investors took in stride news of Sears Holdings' bigger than expected second-quarter loss. Althoug Sears fell nearly 12%, falling $8.76 to $65, its pullback didn't spread to the rest of the market.
Trading this week has reflected investors' uncertainty about what the economy's recovery will look like as they've absorbed both positive and negative data.
With earnings season winding down, analysts say there are few catalysts that could spark a big move in stocks in either direction. At the same time, volume is expected to remain light as traders take summer vacations. Without a clear signal and with fewer participants, trading will likely vary day to day for some time depending on the latest economic news.
Overseas, Chinese stocks recovered from a big sell-off with their biggest rally since March and all the major European indexes rose about 1.5%.