NEW YORK (CNN/Money) - U.S. stocks managed to close with strong gains Thursday, despite an early report indicating a rise in weekly claims for unemployment benefits, as investors chose to focus on more positive earnings news out of the tech and retail sectors and a settlement benefiting the tobacco industry.

Investors also saw some hope in President Bush's announcement that he would sign a $350 billion 10-year tax package, if passed by Congress .

The Dow Jones industrial average (up 77.59 to 8594.02, Charts) and the S&P 500 (up 8.45 to 931.87, Charts) each rose 0.9 percent, while the Nasdaq composite (up 17.68 to 1507.55, Charts) gained 1.2 percent Thursday. All three markets would need significant gains Friday to end the week up. As of the close of trading Thursday, the Dow was down 85 points, the Nasdaq 31, and the S&P 13 points on the week.

"I think we had normal consolidation here," said Brian Finnerty, managing director at Melhado, Flynn & Associates. "It seems like people are banking on a better second half. I don't think it's going to run away, but it's going to get gradually better."

Investors showed little concern with the day's bit of bleak economic news -- another rise in weekly jobless claims. But stock investors instead jumped back into the market after two days of lackluster consolidation, which was preceded by two days of losses. A few stronger-than-expected earnings reports helped the upbeat tone of the market.

Friday likely will make for a very quiet day ahead of the long Memorial Day weekend. U.S. financial markets will be closed Monday in observance of the holiday.

"We are in a bit of a vacuum with the long three-day weekend coming up," said Larry Wachtel, market analyst at Prudential Financial. "Tomorrow will be a vacuum kind of day. "

Investors will have nothing to consider Friday in the way of scheduled economic reports but will get quarterly earnings from Petco (PETC: down $0.28 to $19.65, Research, Estimates) and Sports Authority (TSA: up $0.71 to $8.72, Research, Estimates).

Gap (GSP: Research, Estimates), which posted better-than-expected earning results after the close of trading Thursday, is also likely to draw some attention. The retailer reported a first-quarter profit of 22 cents a share, up from 4 cents in the year-earlier period and a penny better than expected by analysts, on average, according to First Call. Shares of Gap rose 3.3 percent Thursday and were unchanged in after-hours trading.

Before the opening bell Thursday, investors got a dose of bad news. The Labor Department said 428,000 Americans filed for unemployment benefits for the first time last week, more than the previous week's 417,000 claims and economists' estimate of 420,000.

The weekly unemployment claims reading has not dipped below 400,000 since mid-February. A figure 400,000 or above signals a contracting labor market.

But investors drove back into the market, moving past the discouraging jobless claims data and gathering optimism from news that a $350 billion tax cut package is likely to get passed by Congress this week. The plan, which Bush said Thursday he would sign, would lower capital gains and dividend taxes, give some tax breaks to businesses, and speed up income tax cuts.

"We got hit so hard at the beginning of the week," said Tom Schrader, head of listed trading at Legg Mason. "It's a knee-jerk reaction back up. "Unemployment benefits numbers were a little bit weaker, and the markets dusted that off."

Traders said more reflection on Federal Reserve Chairman Alan Greenspan's cautious optimism about the economy in testimony to Congress Wednesday, in addition to the day's better earnings reports, continued to fuel hopes of an economic recovery.

Earnings news that moved stocks included upbeat reports from retailers Foot Locker (FL: up $1.12 to $12.49, Research, Estimates), whose shares rose 9.9 percent, and Clare's Stores (CLE: up $1.80 to $28.66, Research, Estimates), whose shares jumped 6.7 percent. Positive news from Barnes & Noble (BKS: up $0.44 to $20.64, Research, Estimates) also helped boost the sector.

Tech stocks also showed strength after software maker Synopsys (SNPS: up $8.02 to $58.92, Research, Estimates) reported a higher quarterly profit, driven by improved sales of its software used to design semiconductors. Shares of Synopsys rallied 15.8 percent. The report also lifted shares of Applied Materials (AMAT: up $0.22 to $13.88, Research, Estimates).

Altria Group (MO: up $2.75 to $41.05, Research, Estimates), formerly Philip Morris, led gainers on the Dow. The tobacco firm saw a 7.2 percent rise, on top of a nearly 10 percent rally Wednesday, after a Florida appeals court reversed a $145 billion class action judgment against tobacco companies. Goldman Sachs raised its rating on the tobacco sector to "attractive" from "neutral." R.J. Reynolds Tobacco (RJR: up $1.03 to $34.31, Research, Estimates) rose 3.1 percent.

More stocks rose than fell on the New York Stock Exchange, by a margin of more than 2 to 1, where 1.4 billion shares traded. On the Nasdaq, advancers also beat decliners, by a margin of 5 to 3, as 1.7 billion shares changed hands.

Traders said activity was a bit slow as some market participants already began shoring up positions ahead of the long Memorial Day weekend.

Bonds ignored the show of strength in the stock market, heading even higher on the weak jobless claims data. The 10-year note advanced 21/32 of a point in price, its yield easing to 3.32 percent. The dollar continued its retreat against major currencies.

The price of oil retreated, with light sweet crude futures shedding 18 cents to $28.85 a barrel in New York. Gold also declined, losing $4.10 to $368.10 an ounce in New York.

Overseas, stocks in Europe ended the day mostly higher. Markets in Asia were mixed overnight.