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Stocks claw back after drop, close near highs over 15,000

Stocks closed a volatile session in positive territory on Thursday after a brief drop that pushed the S&P 500 below 1,600, amid caution ahead of the government's monthly jobs report and as the U.S. dollar tumbled against the Japanese yen.

"The yen is triggering everything," said Art Cashin, director of floor operations at UBS Financial Services. "They're worried about liquidations of carry-trade positions. It spills over into all the markets. And all the markets are a lot thinner than normal because a lot of people are standing aside because of tomorrow's [jobs] number."

Stocks briefly tumbled over 100 points to session lows in midday trading as the greenback fell below 98 yen for the first time in over a month, before rebounding near session highs in the final hour of trading.

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The Dow Jones Industrial Average finished at 15,040.39 -- back above the psychologically-important 15,000 level -- avoiding a three-day losing streak. Verizon and Home Depot led the blue-chip gainers.

The S&P 500 and the Nasdaq also closed near highs. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, ended near 17.

Defensive sectors led the late-day rally, with telecoms and health care among the best performers. Techs finished slightly lower.

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On the economic front, jobless claims dropped 11,000 to a seasonally adjusted 346,000, according to the Labor Department. Economists expected a reading of 345,000. Earlier, executive recruitment firm Challenger, Grey & Christmas' said corporate job cuts declined again in May.

Investors will be paying close attention to Friday's government jobs report. Employers are forecast to have added 170,000 jobs to their payrolls last month, slightly up from April's 165,000 count, according to a Reuters survey. The unemployment rate is seen holding at an almost 4-1/2 year low of 7.5 percent.

(Read More: Will Friday's Jobs Report Save Stocks? Pros Weigh In)

Employment is a key indicator for the Fed, and Chairman Ben Bernanke has indicated the central bank could start tapering off its $85 billion bond purchases if the jobs market shows consistent improvement.

(Read More:Traders Confused: Is Jobs Market Improving or Not?)

European shares finished near session lows after European Central Bank chief Mario Draghi said the ECB is "technically ready" to lower the bank's deposit rate into negative territory for the first time, which would mean the ECB would charge commercial banks for holding their money overnight.

"That's an indication that Draghi feels that the problem of lending is going to continue to dampen the outlook for a comeback anytime soon," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The risk in the euro zone remains to the downside."

The ECB left its main interest rate unchanged at a record low 0.50 percent and said the euro zone is on track for a "very gradual recovery" later this year driven by the central bank's loose monetary policy and demand from abroad.

"The Governing Council continues to see downside risks surrounding the economic outlook for the euro area," Draghi told reporters in Frankfurt, Germany. "They include the possibility of weaker-than-expected domestic and global demand and slow or insufficient implementation of structural reforms in euro area countries."

Asian stocks fell to new lows, with sentiment vulnerable due to ongoing volatility in Japan's Nikkeibenchmark index.