U.S. Stocks Gain As Investors Sort Through Data

NEW YORK (MarketWatch) -- U.S. stocks rose Thursday as investors digested mostly positive economic data, sales figures from retailers including Dow component Wal-Mart Stores as well as a slew of comments from Federal Reserve officials.

"The market is moving up on some of the good economic data we had today," said Peter Cardillo, chief market economist at Avalon Partners.

"The market is also taking in stride the long list of Fed governors who were once again out there today talking about subprime, the state of the economy and that the Fed may not necessarily key to the market's request of a cut in interest rates," Cardillo said.

The Dow Jones Industrial Average rose 65 points at 13,371, with 20 of its 30 components trading higher.

Leading the Dow higher, United Technologies Corp. gained 2% and Honeywell International Inc. rose 2%.

Shares of Merck & Co. rose 2% after the drugmaker said Thursday that the New Jersey Supreme Court has ruled that lawsuits filed by health management organizations and insurers over Merck's recalled drug Vioxx can't be consolidated into a class action suit.

Wal-Mart Inc. reported a stronger-than-forecast 3% sales rise for August.

The S&P 500 rose 6 points at 1,478, while the technology-laden Nasdaq gained 10 points at 2,616.

Volume at the New York Stock Exchange hit 991 million shares, with advancing stocks outpacing decliners 19 to 12. At the Nasdaq, more than 1.4 billion shares exchanged hands and advancers beat decliners 15 to 12.

Economic data

The number of U.S. workers applying for jobless benefits saw its biggest drop last week since April. The Labor Department said first-time claims for state unemployment benefits fell by 19,000 to 318,000 for the week ending Sept. 1, the first such drop after five straight weeks of increases.

The Labor Department also reported productivity in the U.S. nonfarm business sector climbed at an annual rate of 2.6% in the second quarter, stronger than the 1.8% gain reported earlier.

Separately, nonmanufacturing sectors of the U.S. economy reduced employment for the first time in three years, according to the Institute for Supply Management index for August released Thursday. The ISM employment index dropped to 47.9% from 51.7%, the lowest since February 2003 and the first decline in hiring since July 2004.

Earlier in the session, stocks had a mixed reaction to the largely positive economic data.

Wall Street is a "bizarro world" where good news from the nation's retailers and strong worker production is seen as bad news by some looking for a Federal Reserve interest rate cut, said Robert Pavlik of Oaktree Asset Management. .

"Any positive news about the economy sort of gives an argument that the Fed doesn't have to cut rates when they meet on the 18th," Pavlik said. "That is not a sure bet by any means."

Less positive was news from the Mortgage Bankers Association, with its latest data pointing to another record in the count of mortgage loans going into foreclosure in the second quarter. The group's delinquency survey showed a seasonally adjusted 0.65% of loans on one- to four-unit residential properties entering foreclosure during the period.

Fed officials speak

There are no signs of spillover from the housing and mortgage market woes into other sectors of the economy like consumer spending, Atlanta Federal Reserve President Dennis Lockhart said Thursday.

Lockhart was one of several Fed officials who made comments Thursday. Federal Reserve Bank of St. Louis President William Poole said that there was a higher chance of economic downturn in the U.S. as a result of recent market turmoil. Poole said there was "no question" that financial woes would worsen conditions in the U.S. housing market, but that the effect on the broader economy was less clear. Poole is currently a voting member of the Federal Open Mrket Committee.

Separately, Fed Governor Randall Kroszner said that the Federal Reserve continues to follow developments in financial markets closely, especially those that may have broad impact on the real economy.

Bank moves

The European Central Bank and the Bank of England both held rates steady, with the U.K. central bank noting "tentative signs of slowing consumer spending" but also saying that solid output growth has been sustained.

The ECB injected another $57 billion into the banking system on Thursday, while the Reserve Bank of Australia said it will significantly widen the range of securities it accepts under repurchase agreements.

The People's Bank of China took the opposite tack, lifting the reserve requirement ratio by 0.5 percentage points on Thursday, forcing banks to set aside further reserves to slow its rapidly growing economy.

Registers ring

"Same store sales are in line or slightly better, but certainly not anything to do cart wheels over," said Art Hogan, chief market strategist at Jefferies & Co. "This could be a battle between good and evil today."

Ann Taylor Stores Corp. said its sales for the month climbed 2.9%, beating the 1.9% sales decline projected by analysts.

Gap Inc. reported a better-than-projected 1% sales decline.

Limited Brands Inc. reported 1% growth in same-store sales for August and J.C. Penney Company Inc. late Wednesday disclosed a 4% same-store sales decline.

Saks Inc. reported a better-than-expected 18.2% sales rise, and department store chain Nordstrom Inc. reported sale-store sales climbed 6.6%, topping the 6.3% rise projected by analysts.

Stein Mart Inc. reported an August sales decline of 5.2%, worse than the 4% fall estimated by analysts.

Shares of Apple Inc. slid 1.1% after the technology products maker slashed the price of its iPhone.

Campbell Soup Co. reported a 39% profit rise and General Mills Inc. said it would beat Wall Street targets.

Gold rallies above $700 an ounce

Gold futures rallied to close near $705 an ounce, lifting the benchmark contract to a four-month high on the heels of strong physical demand overseas, safe-haven buying and a weaker U.S. dollar. Gold for December delivery climbed $13.90, or 2%, to close at $704.60 an ounce on the New York Mercantile Exchange.

Crude oil for October delivery climbed 57 cents to close at $76.30 a barrel, marking its strongest closing level since early August. Traders weighed declines in U.S. crude and gasoline supplies and violence in the Middle East against a rise in U.S. refinery activity and uncertainty ahead of a key meeting of oil producers next week.

Treasurys fell, sending yields higher.

The U.S. dollar was mixed against its major rivals after the European Central Bank and Bank of England both decided to hold their key interest rates steady to help stabilize recent market turmoil.

By Polya Lesova