NEW YORK (CNN/Money) -
U.S. stocks posted modest gains Thursday, with investors dipping their toes in on hopes that Friday's much-anticipated monthly employment report will be upbeat.
The optimism followed midday comments from Federal Reserve Governor Ben Bernanke that were perceived as bullish, enabling the major indexes to reverse the morning's losses. The gains, however, were very mild.
The Nasdaq composite (up 5.42 to 2019.56, Charts) gained nearly 0.3 percent. The Dow Jones industrial average (up 24.81 to 10495.55, Charts) and the Standard & Poor's 500 (up 2.07 to 1128.59, Charts) index both gained around 0.2 percent.
"A strong payrolls number would be important for the market and could get the indexes moving as it would enhance hopes that the labor market is improving, which ties into consumer confidence and consumer spending," said Tom Schrader, managing director of U.S. equity trading at Legg Mason Walker Wood.
Economists surveyed by Briefing.com believe Friday's employment report will show businesses added 165,000 new jobs to their payrolls in January, after creating only 1,000 jobs in December. The unemployment rate is forecast to hold steady at 5.7 percent.
"If new job creation is above 200,000 tomorrow, that would be viewed as very positive, but on the other hand, if the number is too high, that could create fears of an interest rate hike of 50 basis points, rather than the 25 the market is currently expecting," said Peter Green, market analyst at MKM Partners.
Stocks fell sharply Wednesday, with the Nasdaq losing 2.5 percent and erasing almost all of its gains for the year. That had little impact on stock prices in the morning, with investors keeping the indexes near unchanged, in response to a weekly jobless claims report, which showed an unexpected rise, and in anxious anticipation of Friday's big monthly employment number.
Bernanke's comments seemed to ease some of their worries.
Speaking at the South Carolina Association of Investment Professionals economic forecasting luncheon Thursday, Bernanke said that the central bank is confident it will see some big numbers on jobs growth "pretty soon," and that it's not unreasonable to expect U.S. gross domestic product growth above 4 percent this year. U.S. businesses are ready to respond to the pick-up in demand, he said, but wages are unlikely to rise anytime soon.
Green said the reaction to Bernanke's comments and hopes for a strong rise in payrolls are political issues as well as economic ones.
"Wall Street votes with its money, and in my opinion, the market has been acting poorly since John Kerry won Iowa," Green said. "If the unemployment picture is indeed improving, then that bodes well for George Bush's reelection campaign, and generally, Wall Street prefers that a Republican is in office."
What's moving?
A number of retailers were on the move after reporting January sales at stores open a year or longer. Among the movers, Wal-Mart Stores (WMT: up $0.86 to $56.25, Research, Estimates) gained 1.5 percent after reporting higher same-store sales in January than forecast, even though the company also said that fourth-quarter earnings would only come in at the low end of its forecast because of the impact of a new German tax law.
Defensive names kept the Dow in positive territory, with Boeing (BA: up $0.80 to $44.36, Research, Estimates), Honeywell (HON: up $0.63 to $35.48, Research, Estimates) and International Paper (IP: up $0.58 to $41.30, Research, Estimates) all gaining at least 1 percent.
Gap (GPS: up $1.69 to $20.59, Research, Estimates) gained nearly 9 percent after it said same-store sales rose 3 percent, when analysts were expecting a decline of 3.2 percent.
Shares of Level 3 Communications (LVLT: down $0.70 to $4.91, Research, Estimates) fell 12.5 percent and placed fourth on the Nasdaq's most-actives list after the provider of broadband and other services to Internet companies warned that market conditions will remain tough in 2004 and that its future revenue will likely suffer due to a cutback from America Online, one of its big customers. AOL is a unit of Time Warner (TWX: up $0.09 to $17.28, Research, Estimates), which owns CNN/Money.
Assurant (AIZ: Research, Estimates) rose 12.3 percent in its first day of trading as a public company, gaining $2.70 to $24.70. Late Thursday, it priced its initial public offering at $22 per share, at the high end of the expected range. The insurance provider is a spin-off of European financial services firm Fortis.
After the close Thursday, EDS (EDS: up $0.22 to $23.29, Research, Estimates) reported earnings of 12 cents per share, a penny more than expected, but lower than a year earlier.
Market breadth was positive. On the New York Stock Exchange, where 1.56 billion shares changed hands, advancers edged out decliners by a narrow margin. On the Nasdaq, winners beat losers by eight to seven on volume of 1.92 billion shares.
Treasury prices tumbled. The 10-year note lost 15/32 of a point in price for a yield of 4.17 percent, up from 4.11 percent late Wednesday. The dollar was weaker against the euro and a little higher against the yen ahead of the G-7 meeting that begins Friday in Boca Raton. The dollar's weakness is expected to be a major topic at the gathering of finance ministers from the seven wealthiest countries.
NYMEX light sweet crude oil futures fell 2 cents to settle at $33.08 a barrel. COMEX gold fell $2.90 to settle at $398.80 an ounce.
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