The Dow and S&P 500 rose on Thursday on stronger-than-expected economic data and German lawmakers' approval of new powers for the euro zone's crisis fund, while weakness in big-cap Internet names weighing 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.

Bank shares rose, with Citigroup Inc up 3.2 percent at $26.76 and JPMorgan Chase & Co up 3.4 percent at $31.49. The KBW Bank index advanced 3 percent.

The vote in Germany was a cause for a lot of relief, but there will likely be more nervousness as we await a final resolution, said Roger Volz, director of cash equities at BGC Financial in New York.

The Dow Jones industrial average was up 168.51 points, or 1.53 percent, at 11,179.41. The Standard & Poor's 500 Index was up 12.31 points, or 1.07 percent, at 1,163.37. The Nasdaq Composite Index was up 5.20 points, or 0.21 percent, at 2,496.78.

Tech names pressured the Nasdaq, with Amazon.com Inc off 1.9 percent at $225.39 following a sharp rally in Wednesday's session. 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 big-cap Internet names were also down. Netflix Inc sank 9 percent to $115.65 while Yahoo Inc lost 3.5 percent to $13.69 and Baidu Inc slid 6.9 percent to $112.96.

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.

The National Association of Realtors Pending Home Sales Index, based on contracts signed in August, fell 1.2 percent to 88.6, its lowest since April. Economists polled by Reuters ahead of the report were expecting sales to drop 1.8 percent.

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 a Greek default. End-of-quarter repositioning 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, Volz said. 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 Jan Paschal)

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