Stocks rose for a third day on Thursday on relief that a ratings cut by S&P in General Electric was just one notch and that no further cuts loomed, while data showed some stabilization in consumer spending.

GE shares jumped nearly 14 percent to $9.67 after Standard & Poor's ratings service lowered its credit rating one notch to 'AA+,' citing the performance of its finance unit, and assigned a stable outlook. Investors had feared the credit rating downgrade would be deeper or the outlook negative.

Adding to the positive tone were comments from Bank of America chief executive Kenneth Lewis, who said he is confident his bank would pass the government's stress test and would not need any more government capital.

Lewis' comments echoed statements by Citigroup and JP Morgan executives in the two prior trading sessions.

It's real good news from banks, said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York. It indicates they are profitable and they are starting to increase their lending -- you couldn't ask for more than that.

They've all weighed in and given us some real hard evidence that things may not be as bad as we thought.

Wal-Mart Stores Inc , up 3 percent at $48.88, ranked among the Dow's top advancers following a government report that showed sales at U.S. retailers fell by an unexpectedly small margin in February.

The Dow Jones industrial average <.DJI> gained 158.42 points, or 2.29 percent, to 7,088.82. The Standard & Poor's 500 Index <.SPX> rose 18.58 points, or 2.58 percent, to 739.94. The Nasdaq Composite Index <.IXIC> added 29.36 points, or 2.14 percent, to 1,401.00.

Bank of America shares gained 15.2 percent to $5.68 and Citigroup rose 4.5 percent to $1.61. JP Morgan Chase added 8.3 percent to $22.10. The KBW Bank index <.BKX> climbed 6.8 percent.

(Editing by James Dalgleish)