The market has been latching on to signs of improvement in the economy to push stocks higher over the past three months, although rising interest rates have become a concern recently and sent stocks lower on Wednesday.
The number of newly laid-off Americans filing for jobless benefits fell last week by 24,000 to 601,000, the Labor Department said, 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 reported that retail sales rose 0.5 percent in May, ending two months of declines and marking the largest increase since January. Investors watch those numbers closely since 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. Higher spending shows consumers might be gaining confidence in the economy and are more willing to buy.
Lockwood cautioned, however, that the market would have to continue to hear good news on the economy in order to hold on to its gains. The market has rebounded sharply since hitting 12-year lows in early March, sending the Standard & Poor's 500 index up 40 percent since then.
"There has been a lot of rallying and rebounding going on, but we have to continue to see improvements," Lockwood said.
In early afternoon trading, the Dow Jones industrial average rose 49.66, or 0.6 percent, to 8,788.68. The S&P 500 rose 6.55, or 0.7 percent, to 945.70, while the Nasdaq Composite index rose 12.65, or 0.7 percent, to 1,865.73.
Growing concerns about higher interest rates have been putting a damper on the stock market recently and sent stocks lower Wednesday after a relatively weak auction for 10-year Treasury notes. On Thursday investors will be watching another Treasury auction, this time for $11 billion in 30-year bonds.
Long-term interest rates have been rising steadily since the beginning of the year, and in recent weeks have become high enough to worry stock investors. The yield on the 10-year note is closely linked to interest rates on home mortgages and other kinds of loans, and investors worry that a spike in rates could hold back economic activity by discouraging borrowing.
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 mixed Thursday. The yield on the benchmark 10-year note fell to 3.92 percent from 3.96 percent late Wednesday, while yield on the three-month T-bill was flat at 0.17 percent.
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 also fell. Oil prices rose $1.37 to $72.70 a barrel.
The Russell 2000 index of smaller companies rose 4.78, or 0.9 percent, to 528.49.
Overseas, Japan's Nikkei stock average rose 0.9 percent. Britain's FTSE 100 rose 0.6 percent, Germany's DAX index gained 1.1 percent, and France's CAC-40 gained 0.6 percent.