Stocks gained on Thursday after a recent small pullback as data on the jobs market and regional manufacturing revived hopes that the recession-hit economy is stabilizing.

Government data showed that while the amount of workers filing new claims for jobless benefits rose last week, the number of people collecting aid after the first week fell for the first time since January.

As well, manufacturing in the U.S. Mid-Atlantic region in June contracted much less than expected, and less than in the previous month. Economic optimism has spurred stocks as much as 40 percent from 12-year lows, but analysts have said signs of real improvement will be needed to sustain the rally.

It really paints a picture of an economy that continues to have a tough road to hoe, but at the end of the day the good news is getting better and the bad news is getting less frequent, said Burt White, chief investment officer at LPL Financial in Boston.

The velocity of the bad news is slowing down, which lends a backdrop for a pretty good baseboard for equities to move higher.

Financial and healthcare stocks led the way higher. Lincoln National was up 7.4 percent at $16.00 after an upgrade from Credit Suisse, and the KBW insurance index <.KIX> rose 1.9 percent. The S&P financial index <.GSPF> gained 2.5 percent.

The Dow Jones industrial average <.DJI> gained 86.01 points, or 1.01 percent, to 8,583.19. The Standard & Poor's 500 Index <.SPX> rose 10.49 points, or 1.15 percent, to 921.20. The Nasdaq Composite Index <.IXIC> added 6.66 points, or 0.37 percent, to 1,814.72.

Friday marks the end of the two-day quadruple witching period, referring to the expiration and settlement of June stock and index futures and options, which may increase volatility. In the midafternoon, the CBOE Volatility Index <.VIX> was down 5.3 percent and below the psychologically important 30 level.

Shares of healthcare companies and other defensive names -- deemed better positioned to withstand a still uncertain economy -- also buoyed the market. Merck & Co Inc jumped 4.3 percent to $25.84, while McDonald's Corp gained 2.2 percent to $58.64.

On the downside, Caterpillar Inc shed 1.9 percent to $34.14 after the heavy machinery maker said its retail sales of machines had fallen at a faster pace in May.

After a nearly 4 percent pullback over the past three sessions, the broad S&P 500 is up about 36 percent from March's 12-year low.

(Editing by Padraic Cassidy)