Stocks rallied on Thursday as solid results from Cisco and mildly encouraging U.S. jobs data gave investors the motivation to scoop up shares beaten down after several days of sharp selling.

Labor Department data showed new U.S. claims for unemployment benefits dropped to a four-month low last week, a dose of good news for an economy battered by a credit-rating downgrade and a spate of soft economic data in recent weeks.

Volatility was high during the session and the market remained vulnerable to violent swings in either direction a day after each of the major U.S. stock indexes slid more than 4 percent on fears about the French banking system's health.

The CBOE Volatility Index <.VIX>, known as the VIX, shed 8.5 percent, but remained elevated at levels not seen in over a year.

The markets are functioning properly. They are adjusting to a change of what the future is going to look like, said Carl Birkelbach, head of Birkelbach Management in Chicago.

We are oversold, No. 1, he said. No. 2 is that it's not an economic crisis of 2008 and 2009 proportions.

While indexes showed solid gains on Thursday, the S&P 500 has fallen for 11 of the past 14 sessions, indicating the selling pressure may not yet be exhausted.

European shares ended higher after French President Nicolas Sarkozy's office said he will meet with German Chancellor Angela Merkel next Tuesday to discuss euro-zone issues. <.EU>

We're being driven by the news flow out of Europe, and until we get clarity, it's hard to get much traction. At the same time, we're also very oversold, said Art Hogan, managing director of Lazard Capital Markets in Boston.

When we hear of steps being taken to address the situation, the market catches a bit of a bid, but then another news story will come out and we sell off. Volatility is really the word of the week.

The Dow Jones industrial average <.DJI> gained 387.08 points, or 3.61 percent, to 11,107.02. The Standard & Poor's 500 Index <.SPX> rose 44.10 points, or 3.93 percent, to 1,164.86. The Nasdaq Composite Index <.IXIC> climbed 93.66 points, or 3.93 percent, to 2,474.71.

The Nasdaq benefited from strength in Cisco Systems Inc , which jumped 16.5 percent to $15.99 a day after it reported quarterly revenue and profits that topped scaled-back expectations. The S&P information technology sector index <.GSPT> added 4.1 percent.

Retailers also provided support after Kohl's Corp advanced 8.2 percent to $47.92 after the moderate-priced department store chain's quarterly earnings beat estimates and it raised its full-year profit view. The Morgan Stanley retail index <.MVR> gained 4.5 percent.

(Reporting by Chuck Mikolajczak: Additional reporting by Ryan Vlastelica; Editing by Jan Paschal)