Stocks rose on Thursday as signs of strength in the economy and higher-than-expected profit at FedEx outweighed a stark warning from the IMF about inaction over Europe's debt crisis.
Trading was volatile before Friday's quadruple witching expiration when not only equity options expire, but also stock index futures, stock index options and individual stock futures.
Stocks pared some of their gains after Christine Lagarde, the head of the International Monetary Fund, said the world economic outlook is quite gloomy and will require action by all countries to head off an escalating crisis that carries risks of a global depression.
But investors were cheered by the latest data that suggested the U.S. economy was showing modest growth.
Applications for unemployment insurance fell to a 3-1/2 year low, while a gauge of New York state manufacturing activity rose to its highest level since May and a separate measure of factory activity in the mid-Atlantic region showed a surge in new orders.
The market's gains were concentrated in defensive sectors such as utilities, suggesting uncertainty was causing risk-takers to put their portfolios in neutral as the week draws to an end, said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.
Unfortunately austerity without a plan for structural changes will cap economic growth and potentially could bleed into earnings. Going into the new year, portfolio managers are squaring their books for that scenario, Morganlader said.
There's a continued rotation into safety and stability in a global austerity environment.
The Dow Jones industrial average <.DJI> was up 69.32 points, or 0.59 percent, at 11,892.80. The Standard & Poor's 500 Index <.SPX> was up 6.57 points, or 0.54 percent, at 1,218.39. The Nasdaq Composite Index <.IXIC> was up 6.82 points, or 0.27 percent, at 2,546.13.
FedEx Corp shares shot up 7.2 percent to $82.87 after the package delivery company, seen as a bellwether of economic activity, reported stronger-than-expected quarterly profit.
The news from FedEx was welcome after a number of high-profile companies warned about revenues and profits in recent days. On Thursday, Honeywell International said Europe's slowing economy would take a toll on orders. But Honeywell's stock rose 1.2 percent to $52.16 after it forecast profit in line with expectations.
On Wednesday, Wall Street fell for a third day to its lowest level in two weeks with the market highly sensitive to developments in Europe.
Big-cap technology shares slipped, including Apple Inc off 0.2 percent to $379.33 and International Business machines , which fell 0.5 percent to $187.77.
Novellus Systems Inc jumped 17.3 percent to $40.72 a day after it agreed to be bought by larger rival Lam Research Corp for $3.3 billion in stock.
Michael Kors Holdings Ltd shares jumped 22 percent to $24.37 in their debut on the New York Stock Exchange after the luxury goods company went public at $20 per share on Wednesday, above the expected range. Earlier Thursday, the stock climbed as much as 25 percent to a session high at $25.23.
(Reporting by Angela Moon; Editing by Kenneth Barry)