Wall Street rallied Thursday after the government's jobless claims data and Ford Motor Co.'s first-quarter results helped reinject some optimism about the economy into the market.
The Dow Jones industrial rose more than 80 points as investors focused on the Labor Department data showing weekly unemployment claims dropped and word that Ford had a $100 million profit in the first quarter. The news allowed investors to look past the Commerce Department's report that new home sales fell in March to the lowest level in more than 16 years, a sign that the housing slump isn't close to an end.
Investors were also able to set aside any concerns about another drop in factory orders for big-ticket manufactured goods and weak forecasts from Amazon.com Inc. and Starbucks Corp. Meanwhile, oil and other commodities prices fell as the dollar rose to its highest level against major currencies since January, which also helped boost stocks.
Sellers held sway early in the session, sending the Dow down nearly 57 points, after the home sales report. The data appeared to stir concerns that the hangover from the housing bubble would remain an intractable obstacle for the economy. But as the session wore on, the market righted itself, perhaps because there were no real surprises in the day's negative news.
John Merrill, chief investment officer at Tanglewood Capital Management in Houston, said investors are seeing confirmation of many of the economic themes that have played out in recent months, with weakness in the financial, homebuilding and automotive sectors and relative strength elsewhere.
"The earnings picture is not so bleak as people though it was going to be," he said. "There's been so much talk of the spillover from the credit crunch and homebuilding into the real economy and that just doesn't seem to have happened."
The Dow rose 85.73, or 0.67 percent, to 12,848.95.
Broader stock indicators also gained. The Standard & Poor's 500 index rose 8.89, or 0.64 percent, to 1,388.82, and the Nasdaq composite index advanced 23.71, or 0.99 percent, to 2,428.92.
Bond prices declined. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.83 percent from 3.74 percent on Wednesday.
Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where consolidated volume came to 4.34 billion shares, up from 3.81 billion on Wednesday.
The dollar rose for the second straight day, regaining ground from its record low against the euro on Tuesday amid rising expectations that the Federal Reserve will pause in its string of interest rate hikes following its meeting next Wednesday. The euro brought $1.5686 in late New York trading, down from $1.5896 Wednesday and $1.6018 on Tuesday.
The greenback's advance sent commodities prices falling; hard assets like oil and gold tend to rise when the dollar is falling, so they reversed course Thursday as the U.S. currency regained some strength.
A drop in oil prices was particularly reassuring for Wall Street. Crude's surge toward $120 a barrel earlier this week compounded already rising concerns about inflation and its impact on consumer spending. Light, sweet crude fell $2.24 to settle at $116.06 on the New York Mercantile Exchange.
The Labor Department's report that claims for unemployment benefits declined by 33,000 last week to 342,000 came as a surprise after economists predicted claims would rise by 3,000. The notion that unemployment might be contained appeared to cap some concern about the economy. With consumer spending accounting for about 70 percent of U.S. economic activity, a rise in unemployment could dent people's willingness to reach into their wallets.
But unwelcome news came from the Commerce Department, which said new home sales fell by 8.5 percent in March to a seasonally adjusted annual rate of 526,000 units — the slowest pace since October 1991. Also, the median price of a new home showed the sharpest year-over-year decline in nearly four decades.
Moreover, orders to factories for durable goods — big-ticket items like refrigerators, cars and computers — fell for a third straight month in March. This marks the longest sustained pullback since the 2001 recession.
Amazon had worried investors over the strength of its profit margins, while Starbucks warned that its second-quarter profit will likely fall short of Wall Street's expectations because of weak consumer spending.
Their forecasts, delivered after the closing bell Wednesday, touched off unease over the prospects for the consumer. Amazon fell $3.31, or 4.1 percent, to $77.69, while Starbucks dropped $1.86, or 11 percent, to $15.99.
But Ford said strong results from Europe and South America helped make up for a slower U.S. economy. The No. 2 U.S.-based automaker's performance was its first profitable quarter since the second quarter of 2007. Ford rose 88 cents, or 12 percent, to $8.40.
3M Co. — the maker of Scotch tape and Post-It notes — fell $1.50 to $79.13 after reporting its first-quarter profit fell 28 percent from a year earlier, when it benefited from a gain on the sale of one of its branded pharmaceutical business in Europe.
Motorola Inc. slid 30 cents, or 3.1 percent, to $9.25 after reporting that its first-quarter loss widened following a 39 percent decline in its mobile business.
The Russell 2000 index of smaller companies rose 8.96, or 1.27 percent, to 717.07.
Overseas, Japan's Nikkei stock average fell 0.28 percent. Britain's FTSE 100 closed down 0.54 percent, Germany's DAX index rose 0.39 percent, and France's CAC-40 fell 0.31 percent.