NEW YORK (CNN/Money) - Stocks headed for a higher open Thursday as investors cheered a sharp drop in jobless claims, which slipped to a level indicating an expanding labor market for the first time in five months.

Investors also saw some encouragement in quarterly results from Dow components AT&T, SBC Communication and International Paper.

Just after 8:30 a.m. ET, stock futures reversed direction and began pointing to a higher start for the major indexes.

The government said its weekly reading on initial jobless claims dropped to 386,000 from a revised 415,000 in the previous week. Economists had forecast a reading of 415,000 for the week ended July 19, according to Briefing.com. The number fell below 400,000, which signifies contraction in the jobs market, for the fist time since mid-February.

AT&T (T: Research, Estimates), the nation's leading long-distance service provider, posted a second-quarter profit on Thursday, reversing a year-ago loss, but revenue fell amid slack customer demand and pricing pressures. The company also increased its dividend by 27 percent. Among U.S. stocks trading in Europe, AT&T was up about 1 percent.

Its fellow telecom and Dow component, SBC Communications (SBC: Research, Estimates), reported net profit of 42 cents a share, down from 61 cents in the prior year, but beating analysts' average estimate by a penny.

The other Dow issue due to report earnings Thursday is International Paper (IP: Research, Estimates), which is seen putting up profit of 17 cents a share, less than the 35 cents a share made in the 2002 period.

Meanwhile, Dow Chemical (DOW: Research, Estimates) posted net earnings of 43 cents a share, up from 26 cents a share in the year-earlier period and better than the 35 cents Wall Street expected.

For details of Wednesday's step forward, click above

Media conglomerate Viacom (VIA.B: Research, Estimates) reported a profit of 37 cents a share, up from 31 cents a share in the same quarter last year and a penny better than analysts expected, on average.

Defense contractor Raytheon (RTN: Research, Estimates) is also scheduled to report ahead of the open.

After the close, online auctioneer eBay (EBAY: Research, Estimates) plans to weigh in with its second-quarter results, expected to be a profit of 35 cents a share, up from 19 cents a year earlier, according to a survey of analysts by First Call. Also expected after the close are coffee purveyor Starbucks (SBUX: Research, Estimates) and former high-flying fiber-optic equipment maker JDS Uniphase (JDSU: Research, Estimates).

Among the companies reporting results late Wednesday was data processor EDS (EDS: Research, Estimates). The company said its second-quarter profit fell 56 percent. Electronic Arts (ERTS: Research, Estimates) reported a better quarter that beat analysts' estimates after the close Wednesday.

In other corporate news, J.P. Morgan downgraded billing software maker ?Amdocs (DOX: Research, Estimates) to "neutral" from "overweight," while Merrill Lynch raised its price target for the company to $30 from $25 and increased fiscal 2004 estimates.

The Dow Jones industrial average gained 0.4 percent Wednesday. The Nasdaq composite index was up 0.8 percent with help from the better-than-expected Amazon.com (AMZN: Research, Estimates) results (see chart for details).

Asian-Pacific stocks ended higher Thursday, with Tokyo's Nikkei index up 0.6 percent. European markets were mostly higher in midday trading. (Check the latest on world markets)

Treasury prices slipped in early trading, sending the 10-year note yield up to 4.16 percent from 4.10 percent late Wednesday. The dollar hit a three-week low versus the euro and also retreated against the yen.

Brent crude oil futures lost 2 cents to $27.76 a barrel in London, where gold continued to climb in early trading.