U.S. stocks rose on Thursday, helped by an upbeat earnings outlook and favorable news in the biotech and pharmaceutical sectors, while economic data eased worries about a possible recession.

Stronger-than-expected reports on the services sector and retailers' monthly sales pointed to underlying strength in the economy, although hopes dimmed for a series of Federal Reserve interest rate cuts .

Shares of industrial conglomerates gained, including General Electric Co., up 1 percent at $39.14.

Biotech company Biogen Idec Inc issued a long-term earnings outlook that topped analysts' expectations, while shares of Merck & Co Inc (MRK.N: Quote, Profile, Research) rose after the company prevailed in a court ruling about reimbursement for Merck's arthritis drug, Vioxx.

The Dow Jones industrial average was up 42.84 points, or 0.32 percent, at 13,348.31. The Standard & Poor's 500 Index was up 2.60 points, or 0.18 percent, at 1,474.89. The Nasdaq Composite Index was up 3.31 points, or 0.13 percent, at 2,609.26.

Rick Campagna, portfolio manager, Provident Investment Council in Pasadena, California, said the reason biotech and other growth sectors are up might be that the market is looking for a slower (economy) where we get a rate cut but not so slow we get a recession.

Merck shares were up 1.9 percent at $50.34 on the NYSE while Biogen shares surged 6 percent to $66.62 on the Nasdaq.

Other biotech stocks tracking Biogen were Gilead Sciences Inc, up 2.8 percent to $37.50 and Celgene Corp, up 2 percent to $66.39.

Brokerage Sanford Bernstein is set to host a conference call on Friday to discussing why investors should be overweight in biotechnology stocks.

The Institute for Supply Management said its non-manufacturing index pointed to growth in the vast U.S. services sector last month, surprising economists who had expected a slight decline.

Other reports showed weekly unemployment benefits claims fell and unit labor costs in the second quarter rose less expected.

Retail chains, including Wal-Mart Stores Inc, reported sales data that topped analysts' expectations, suggesting the turmoil in the mortgage market has not slowed U.S. consumer spending. Shares of Wal-Mart rose 1 percent to $42.86. (Additional reporting by Jennifer Coogan)