Stocks flip-flop after jobs, retail data

Investors kept their focus on an economic recovery Thursday, shaking off disappointing news and buying stocks in some riskier industries.

Wall Street's major indexes wavered but held on to their gains from the big rally that followed the Federal Reserve's upbeat comments one day earlier. Financial, technology and energy companies were among the big winners, while stocks in defensive, or relatively safer, industries like health care and utilities fell. Retailers declined after a worse-than-expected report on retail sales.

Meanwhile, Treasury prices rose after the government had a successful auction of 30-year bonds. The Treasury Department issued a total of $75 billion of debt this week as part of its ongoing efforts to fund the government's stimulus programs, and investors were relieved that the market was able to absorb such a huge supply.

Wall Street's showing Thursday was a sign of the market's strength in the day's economic reports that suggested the economic recovery could be slowed by a weak consumer. Investors seemed to look past the latest news and focus on the Fed's more upbeat assessment of the economy. Stocks soared Wednesday after the Fed reassured investors that the economy was "leveling out," not just easing its decline.

"I think investors are prepared to give the economy some time to show a strong improvement," said Avery Shenfeld, chief economist at CIBC World Markets.

Among the day's reports, the Commerce Department said retail sales fell 0.1% in July, significantly worse than the 0.7% increase economists expected. Retail sales are considered a strong indicator of economic recovery because consumer spending accounts for more than two-thirds of all economic activity.

A weekly report on unemployment also came in worse than projected. The Labor Department said the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly to a seasonally adjusted 558,000, from 554,000 the previous week. Analysts were expecting new claims to drop to 545,000.

Overseas, Asian markets rose after the Fed signaled the world's largest economy was improving, while European markets have been boosted by new data showing recessions have ended in Germany and France.

Financial stocks led the day's gains, buoyed by news that the hedge fund run by John Paulson bought about 168 million shares of Bank of AmericaBAC Paulson foresaw the distress in subprime mortgages and reaped billions by betting against the related securities, so his purchases of Bank of America stock are seen as a vote of confidence in the bank's future.

"He gives a lot of credibility because he certainly saw the danger on the credit side," said Anton Schutz, portfolio manager of Burnham Financial Industries Fund and Burnham Financial Services Fund.

Regional banks also rose significantly after tumbling earlier in the week on downbeat comments from an analyst that raised doubts about some banks' ability to improve their earnings in the second half of the year.

Shares of Wal-MartWMT rose after the world's largest retailer reported better-than-expected second quarter earnings. Wal-Mart also raised the low end of its profit guidance, saying it expects shoppers to continue to be attracted by its low-priced items.

Another government report showed businesses reduced inventories for a 10th straight month in June, although total business sales posted the first increase in nearly a year.

Investors have sent stocks soaring the past few weeks as improving corporate profits and signs of life in the troubled housing industry gave the market hope that the economy is healing. The Fed's comments on Wednesday affirmed for investors that their recent bets had been warranted.

The S&P 500 index has risen 14.4% in little more than a month and 48.7% since it fell to a 12-year low in early March.

Treasurys rose higher after the successful auction of 30-year bonds. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.61% from 3.72% late Wednesday.

The dollar fell against other major currencies, while gold prices rose.

Light, sweet crude rose 95 cents to $71.11 a barrel on the New York Mercantile Exchange.