updated 8/18/2006 10:19:18 AM ET 2006-08-18T14:19:18

Strong earnings from Hewlett-Packard Co. and a sharp drop in oil prices pushed stocks higher Thursday and helped investors overcome the urge to take profits after the strong gains of the past two sessions.

Major Market Indices

Hewlett-Packard’s solid earnings pushed technology stocks higher, but a wider impact was offset by poor sales at Sears Holdings Corp., which overshadowed improving margins at the retailer.

Higher U.S. energy stockpiles and the continued cooling of Middle East tensions fueled the drop in crude futures. A barrel of light crude was quoted at $70.06, down $1.83, on the New York Mercantile Exchange.

Wall Street also was encouraged by a slight drop in the index of leading economic indicators, which is designed to forecast future economic conditions. The index fell 0.1 percent in July after a 0.1 percent increase in June, suggesting the economy could weaken in coming months. Investors are hoping for a modest slowdown in economic growth to keep inflation pressures at bay.

“Right now, as opposed to three weeks ago, you’ve got investors willing to buy on some good news, rather than simply not sell on good news,” said Chris Johnson, manager of quantitative analysis at Schaeffer’s Investment Research. “The mind-set has changed here, and you’re seeing that today as we still go higher after these past two days.”

At the close of trading, the Dow Jones industrial average rose 7.84, or 0.07 percent, to 11,334.96. The Dow gained nearly 229 points in the previous two sessions.

Broader stock indicators also were up for a third straight day of gains. The Standard & Poor’s 500 index added 2.05, or 0.06 percent, to 1,297.48, and the Nasdaq composite index climbed 8.07, or 0.38 percent, to 2,157.61.

Bonds were little changed after two sessions of gains, with the yield on the benchmark 10-year Treasury note steady at 4.87 percent from late Wednesday. The dollar was down against most major currencies, while gold prices rose.

Concurrent rallies in stocks and bonds are rare, since investors in each market buy for different reasons. Bonds generally move higher as investors hedge against a slower economy, while stocks climb based on strong expectations for corporate profits, which need a strong economy to grow.

In this case, however, investors in stocks and bonds are hoping for the same thing, a “soft landing,” engineered by the Federal Reserve’s interest rate policy, in which the economy does slow so that inflation is contained, but grows enough to keep corporate profits strong.

“I’m not sure that I endorse this idea, because if you really look at it, the Fed doesn’t have a good record of engineering these soft landings,” said Ken Tower, chief market strategist for Schwab’s Cybertrader. “There’s a lot of optimism, though, that the Fed can do just the right thing to steer the economy, but that’s based just on this week’s economic data. Next month, we could be right back in the soup.”

Indeed, there was a small note of warning from the Labor Department’s weekly jobless claims report, in which claims fell by the largest margin in a month. There were 312,000 first-time jobless claims last week, down 10,000 from the previous week. Investors fear that a resurgent labor market could boost economic growth too much, sparking inflation and cramping corporate earnings.

For now, however, second-quarter earnings remain strong overall. Dow industrial Hewlett-Packard gained after reporting a surge in second-quarter profits, powered by strong laptop and printer sales.

Sears continued its turnaround, posting second-quarter profits that doubled from a year ago, but investors remained concerned about falling sales, which also plagued rivals Wal-Mart Stores Inc. and BJ’s Wholesale Corp. Sears shares fell sharply.

Barnes & Noble Inc. shares rose after it posted a 23 percent jump in quarterly profits, though the gains were fueled by lower costs that helped offset lagging sales.

Shares of Time Warner Inc. edged up after The New York Times reported that investor Carl Icahn increased his stake in the media conglomerate, a sign that he may renew his bid to gain control of the company.

Overseas, Japan’s Nikkei stock average fell 0.31 percent. Britain’s FTSE 100 rose 0.06 percent, Germany’s DAX index added 0.35 percent, and France’s CAC-40 rose 0.15 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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