The Dow and S&P 500 rose on Thursday on stronger-than-expected economic data and German lawmakers' approval to strengthen the euro zone's crisis fund, while big-cap Internet shares dragged on the Nasdaq.
The data showed modest improvement in the job market, as well as second-quarter economic growth and housing, although the stubbornly high U.S. unemployment rate presents a major hurdle for economic progress.
The U.S. Labor Department said initial applications for unemployment benefits fell to a five-month low last week.
Europe again averted disaster in its debt crisis when German deputies rallied behind Chancellor Angela Merkel to approve a stronger euro-zone bailout fund on Thursday.
The Bundestag approved new powers for the 440 billion euro EFSF fund to make precautionary loans, help recapitalize banks and buy distressed countries' bonds in the secondary market.
The vote in Germany is obviously positive news and is exactly what is needed to give the region the go-ahead to recapitalize their banks, said Deirdre Dennehy, portfolio manager at the Rockland, Massachusetts-based Rockland Trust, which has about $4.8 billion in assets under management.
Liquidity is the main problem there, and this will provide for more liquidity.
Bank shares rose, including Citigroup Inc up 2.3 percent at $26.50 and JPMorgan Chase & Co up 3.1 percent at $31.43. The KBW Bank index <.BKX> advanced 2.6 percent.
The Dow Jones industrial average <.DJI> was up 147.13 points, or 1.34 percent, at 11,158.03. The Standard & Poor's 500 Index <.SPX> was up 10.47 points, or 0.91 percent, at 1,161.53. The Nasdaq Composite Index <.IXIC> was down 2.60 points, or 0.10 percent, at 2,488.98.
Techs pressured the Nasdaq, with Amazon.com Inc off 1.9 percent at $225.39 following a sharp rally on Wednesday. Advanced Micro Devices sank 12.9 percent to $5.35 after cutting its third-quarter revenue outlook, prompting many analysts to downgrade their views on the stock.
Other Internet stocks were also down. Netflix Inc sank 11 percent to $113.60 while Yahoo Inc lost 3.4 percent to $13.72 and Baidu Inc slid 9.8 percent to $109.45.
In other economic data, the Commerce Department said gross domestic product grew at an annual rate of 1.3 percent in the April-June quarter, up from the previously estimated 1.0 percent pace and helped by consumer spending and export growth.
Market volatility is likely to remain high as traders react to European headlines and attempt to gauge the commitment of governments and institutions as they work to prevent default by debt-troubled countries. End-of-quarter repositioning by money managers will also influence market movement.
We're getting a bounce now, but we could just as easily retest the bottom of our recent range as the top, said Roger Volz, director of cash equities at BGC Financial in New York. Things are going to be messy for the next few days.
Also supporting equities were statements from Federal Reserve Chairman Ben Bernanke on Wednesday that the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly.
The benchmark S&P 500 index is expected to finish the year down for the first time in three years as an escalating European debt crisis and stalled U.S. economy led strategists to slash forecasts in the latest Reuters poll.
(Reporting by Ryan Vlastelica; Editing by Kenneth Barry)