NEW YORK (CNNMoney.com) -- The Dow rallied Thursday, leading the broader market higher, as investors welcomed a bigger-than-expected drop in jobless claims and a rise in the euro.
The Dow Jones industrial average (INDU) gained 120 points, or 1.2%. The S&P 500 (SPX) added 10 points, or 0.9% and the Nasdaq (COMP) composite gained 16 points or 0.7%.
Stocks surged Wednesday after State Street's improved earnings forecast boosted financial shares, giving a lightly traded market a reason to rally. A stronger euro took the pressure off European debt worries.
The positive mood continued Thursday, after a shaky start to the session.
"The sentiment had gotten overly bearish and in an environment like that, you can see these oversold bounces," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research.
Through the end of last week, the major stock indexes dropped more than 15% off the rally highs of late April as investors tried to price in the threat of a so-called double-dip recession. While the selling seems to have tapered off in the short term, stocks remain vulnerable.
"The stock market is not going to get its footing and show overall progress until we can see an improvement in the labor market," said James King, chief investment officer at National Penn Investors Trust.
On the move: Gains were broad based, with 27 of 30 Dow issues rising, led by consumer names Procter & Gamble (PG, Fortune 500), Coca-Cola (KO, Fortune 500) and McDonald's (MCD, Fortune 500). Other gainers included Caterpillar (CAT, Fortune 500), 3M (MMM, Fortune 500) and Chevron (CVX, Fortune 500).
Merck (MRK, Fortune 500) said it was closing eight research and eight manufacturing plants as part of its restructuring following its merger with Schering-Plough.
Labor market: Roughly 454,000 Americans filed new claims for unemployment insurance last week, down from 475,000 in the previous week, according to a Labor Department report released Thursday. Economists surveyed by Briefing.com expected 460,000 new claims.
Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to 4,413,000 from 4,637,000 in the previous week. Economists expected 4,600,000 continuing claims.
While the drop-in claims was welcome, economists say the nation still has a long way to go before it creates enough jobs to promote growth.
"The report was positive, but we don't see evidence that significant progress is being made to bring down the unemployment rate on a stable or recurring basis," said King.
The June jobs report, released a week ago, showed a rise in private-sector hiring that was smaller than expected, and a drop in the overall number of jobs.
Retail sales: Sales at the nation's retailers rose for a tenth consecutive month in June, but the pace of consumer spending continues to slow after a burst in the early part of the year.
June same-store sales rose 3.1% versus forecasts for 3.2%, according to tracker Thomson Reuters. Sales rose 2.5% in May and dropped 4.9% in the same month a year ago. The term 'same-store sales' is an industry metric that refers to stores open a year or more.
On the upside, department stores such as J.C. Penney (JCP, Fortune 500), Nordstrom (JWN, Fortune 500) and Macy's (M, Fortune 500) all reported better-than-expected results, while Gap (GPS, Fortune 500) and BJ's Wholesale (BJ, Fortune 500) were among the losers.
Mortgage rates: Long-term rates fell to the lowest point since the 1950s, dropping for a second-straight week. The average rate on a 30-year fixed mortgage fell to 4.57% from 4.58% in the previous week, Freddie Mac reported. Its the lowest rate since Freddie Mac started tracking rates in 1971 and the lowest since the 1950s.
Currency: The euro rose to a two-month high versus the dollar, on some optimism about the results of European bank stress tests, also gave stocks some support.
World markets: European markets gained, with Britain's FTSE 100 rising 1.8%, Germany's DAX advancing 0.7% and France's CAC 40 climbing 1.6%.
Asian markets ended higher except for China. Japan's Nikkei rose 2.8%, Hong Kong's Hang Seng gained 1% and the Shanghai Composite fell 0.3%.
Commodities: U.S. light crude oil for August delivery rose 37 cents to $75.81 a barrel on the New York Mercantile Exchange.
COMEX gold for August delivery rose $2.30 to $1,198.40 an ounce.
Bonds: Treasury prices fell, raising the yield on the 10-year note to 3.02% from 2.98% late Wednesday. Debt prices and yields move in opposite directions.
Market breadth: Market breadth was positive. On the New York Stock Exchange, winners beat losers nearly four to one on volume of 1.16 billion shares. On the Nasdaq, advancers beat decliners nine to four on volume of 2.07 billion shares. 
| Overnight Avg Rate | Latest | Change | Last Week |
|---|---|---|---|
| 30 yr fixed | 3.80% | 3.88% | |
| 15 yr fixed | 3.20% | 3.23% | |
| 5/1 ARM | 3.84% | 3.88% | |
| 30 yr refi | 3.82% | 3.93% | |
| 15 yr refi | 3.20% | 3.23% |
Today's featured rates:
| Index | Last | Change | % Change |
|---|---|---|---|
| Dow | 32,627.97 | -234.33 | -0.71% |
| Nasdaq | 13,215.24 | 99.07 | 0.76% |
| S&P 500 | 3,913.10 | -2.36 | -0.06% |
| Treasuries | 1.73 | 0.00 | 0.12% |
| Company | Price | Change | % Change |
|---|---|---|---|
| Ford Motor Co | 8.29 | 0.05 | 0.61% |
| Advanced Micro Devic... | 54.59 | 0.70 | 1.30% |
| Cisco Systems Inc | 47.49 | -2.44 | -4.89% |
| General Electric Co | 13.00 | -0.16 | -1.22% |
| Kraft Heinz Co | 27.84 | -2.20 | -7.32% |
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