Stocks mostly rise after surprise drop in continued jobless claims; retail sales data mixed

Stocks mostly gain after data on jobs, retailers

NEW YORK — Cautious traders are placing small bets on signs of improvement in the economy.

Stocks mostly rose Thursday after the number of workers continuing to receive unemployment benefits unexpectedly fell for the first time in 20 weeks.

New jobless claims fell last week to 621,000 from 625,000, nearly matching analysts’ expectations.

The drop, while small, provided investors a nugget of hope that unemployment could be easing. The data also arrived a day ahead of the government’s monthly tally of job losses, one of the most important economic indicators for the stock market. Investors watch those numbers closely since growing unemployment can affect core elements of the economy including consumer spending, retail sales and the housing market.

“Things seem to have stabilized and people are hunting for any sort of information they can get to determine the next move in the market and the economy,” said Jim Sinegal, equity analyst at Morningstar in Chicago.

The flicker of hope about the labor market was checked, however, by concerns about retailers after many reported poor sales for May. Consumer spending accounts for more than two-thirds of U.S. economic activity.

In early afternoon trading, the Dow Jones industrial average rose 30.65, or 0.4 percent, to 8,705.93. The broader Standard& Poor’s 500 index rose 5.36, or 0.6 percent, to 937.12, and the Nasdaq composite rose 11.02, or 0.6 percent, to 1,836.94.

Retailers like Costco Wholesale and Hot Topic posted bigger-than-expected sales slumps as shoppers stuck to their budgets. A year ago, sales benefited from government stimulus checks. Costco fell $1.06, or 2.2 percent, to $47.41, while Hot Topic fell 28 cents, or 3.7 percent, to $7.26.

Bank stocks got a boost Thursday from an upbeat forecast on the industry from RBC Capital Markets analysts who contend that the worst of the financial crisis is over. KeyCorp. jumped 78 cents, or 17 percent, to $5.38, and Goldman Sachs Group Inc. rose $6.62, or 4.7 percent, to $148.77.

The day’s news presents a familiar quandary for investors who have been grappling with mixed signals on the economy lately. Some reports have suggested the economy’s decline is slowing, but others indicate that business and consumers are still feeling the pain of a deep recession that began in December 2007.

The market’s more than 30-percent advance since early March has been driven by economic data that beat investors’ expectations, but the mood was grim at the time. Now that the economy has shown small signs of improvement, the market’s expectations are rising and investors are now anxious for more clear indications of growth.

“If we’re on the cusp of a recovery and a convincing recovery, then the stock market makes all the sense in the world,” said Michael Darda, an economist with MKM Partners in Greenwich, Conn. “If it turns out there is no recovery until next year, then the market could run into some trouble.”

On Wednesday, disappointed investors broke a four-day winning streak in the market and sold stocks on weaker-than-expected reports on factory orders and the services sector.

The S&P and Nasdaq hit their highest levels of the year on Tuesday, while the Dow has yet to return to the black for 2009 since the first few days of January.

Scott Jacobson, chief investment strategist at Capstone Sales Advisors in New York, said investors should be careful about expecting that the gains will continue to come.

“It’s too late right now to dump all your money into the stock market given where it is,” he said.

Investors are likely to remain focused on areas that remain worrisome: consumer spending, unemployment, rising oil and commodity prices and a weakening dollar.

The dollar has fallen steadily since early March as investors’ appetite for riskier assets increased. A falling dollar can trigger inflation, and weakens the buying power of American consumers.

On Thursday, however, the dollar rebounded against the euro and the British pound after both the Bank of England and the European Central Bank kept their benchmark interest rates at historical lows.

Central banks have slashed rates to keep borrowing costs low. But lower rates tend to weaken a country’s currency by reducing the yields on cash investments for currency traders.

Both gold and oil prices resumed their three-month climbs following sharp pullbacks on Wednesday.

Light, sweet crude rose $3.11 to $69.23 a barrel on the New York Mercantile Exchange.

In other trading, the Russell 2000 index of smaller companies rose 5.28, or 1 percent, to 527.99.

About three stocks rose for every two that fell on the New York Stock Exchange, where volume came to 432.8 million shares compared with 484.6 million traded at the same time Wednesday.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.64 percent from 3.54 percent.

Last week, the 10-year yield surged to a six-month high of 3.75 percent on worries over mounting U.S. debt loads. Rising long-term yields also have investors worried, since interest rates on mortgages and other consumer loans that are tied to the 10-year Treasury note rise, hampering prospects for increased home sales and mortgage refinancing.

Overseas, Japan’s Nikkei stock average fell 0.8 percent. Germany’s DAX index rose 0.2 percent while Britain’s FTSE 100 and France’s CAC-40 each gained less than 0.1 percent.