Stocks edged higher on Thursday as better than-expected-sales from key retailers in August offset continued weakness in the labor market.

The sales data lifted stocks despite higher-than-forecast initial claims for jobless benefits and survey results showing the U.S. nonmanufacturing sector was still contracting in August.

For four previous sessions, stocks had been unable to capitalize on relatively strong data - such as the retail sales - and instead showed little conviction in the traditionally weak month of September.

The reality is more like, the cyclical indicators may not be getting worse, but recovery is going to be more modest, said Subodh Kumar, chief investment strategist at Subodh Kumar Associates in Toronto.

The Dow Jones industrial average <.DJI> gained 6.95 points, or 0.07 percent, to 9,287.62. The Standard & Poor's 500 Index <.SPX> added 1.18 points, or 0.12 percent, to 995.93. The Nasdaq Composite Index <.IXIC> rose 0.48 points, or 0.02 percent, to 1,967.55.

Costco Wholesale Corp and Target Corp were among retailers posting better-than-expected sales in August. Costco's shares rose 7.8 percent to $54.63, helped by an upgrade to overweight at JPMorgan, while Target gained 1.7 percent to $47.02. The S&P retailer index <.RLX> rose 1.1 percent.

Government data showed initial jobless claims fell to 570,000 from a revised 574,000 the week before, but that was above economists' forecast for 560,000.

The Institute for Supply Management said its services index rose to 48.4 in August, slightly above the 48.0 median forecast of economists surveyed by Reuters.

Chinese stocks <.SSEC> rose almost 5 percent overnight, giving U.S. stocks an early lift, after a top regulator told investors that China's market was healthy. Equities in China had fallen steeply in recent days, rattling investors around the world.

(Reporting by Edward Krudy; Editing by Padraic Cassidy)