The stock market's rally is shifting to a lower gear. The Dow Jones industrial average tacked on a modest 32 points Thursday after being up as much as 139 points, and the Standard & Poor's 500 index edged up to reach its highest level since November.
Investors welcomed upbeat economic reports of a drop in jobless claims, growth in retail sales and better-than-expected demand at a government debt auction. But traders also seemed mindful of how far the market has come in its three-month rally.
The stock market has at times run low on fresh evidence of economic recovery that could push the rally further. The data out Thursday helped but weren't enough to keep the pace of buying strong.
The Labor Department reported that the number of newly laid-off Americans filing for jobless benefits fell last week by 24,000 to 601,000, better than the forecast of economists polled by Thomson Reuters. However the number of unemployed continuing to file for claims rose to 6.8 million, the highest on records dating to 1967.
Meanwhile the Commerce Department said retail sales rose 0.5% in May, ending two months of decreases and marking the largest gain since January. Investors watch those numbers because consumer spending accounts for more than two-thirds of economic activity.
Doug Lockwood, chief investment officer at Cornerstone Wealth Management said retail sales growth is one of the strongest indicators that the recession may be easing. Hope of a recovery has pushed the S&P 500 index up 39.7% from a 12-year low on March 9.
"There has been a lot of rallying and rebounding going on, but we have to continue to see improvements," Lockwood said.
Stocks rose to their highest levels in afternoon trading when the Treasury Department said an auction for 30-year Treasury bonds attracted strong demand. That allowed investors to set aside some of their recent worries about higher interest rates. Stocks lost ground Wednesday following a relatively weak auction for 10-year notes.
The Dow rose 31.90, or 0.4%, to 8,770.92. The S&P 500 rose 5.74, or 0.6%, to 944.89, while the Nasdaq Composite index rose 9.29, or 0.5%, to 1,862.37.
Growing concerns about higher interest rates has been putting a damper on the stock market recently and sent stocks lower Wednesday after a relatively weak auction for 10-year Treasury notes in which the government had to lure in buyers with a higher yield than the market had anticipated. The yield on the 10-year note is closely linked to interest rates on home mortgages and other kinds of loans.
Investors have been uneasy in the past two months about the demand for government debt because if Washington has to raise rates to attract buyers that could hurt the economy by boosting borrowing costs.
"The bond market is a potential risk to the stock market if yields continue to move higher," said Dean Curnutt, president of Macro Risk Advisors. "A further rise in yields threatens to choke off a recovery."
The Mortgage Bankers Association said earlier this week that demand for refinancing mortgages has fallen as rates moved higher. Like consumer spending, a recovery in the housing market is also seen vital to an economic recovery.
Bond investors have also been worried that a flood of new supply in the Treasury market could hurt bond prices as the government issues massive amounts of debt to finance its financial bailout and economic stimulus programs.
Treasury prices were mostly higher going into the auction for 30-year bonds and continued to rise afterward, pushing their yields lower. The yield on the benchmark 10-year note fell to 3.86% from 3.96% late Wednesday. The yield on the 30-year Treasury bond fell to 4.70% from 4.77% late Wednesday.
The yield on the three-month T-bill rose to 0.18% from 0.17%.
A weakening dollar, which can drive up prices of imported goods and commodities, has also brought worries of inflation. The dollar fell against other major currencies, while gold prices rose. Oil prices rose $1.35 to settle at $72.68 a barrel.
Oil has been rising, in part, as more investors look for a safe haven to stash money in because of the sliding value of the dollar.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange. Volume came to 1.2 billion shares, essentially flat with Wednesday.
The Russell 2000 index of smaller companies rose 2.37, or 0.5%, to 526.08.
Overseas, Japan's Nikkei stock average rose 0.9%. Britain's FTSE 100 rose 0.6%, Germany's DAX index gained 1.1%, and France's CAC-40 gained 0.6%.