NEW YORK (CNNMoney) -- U.S. stocks rose modestly Thursday as investors welcomed mostly positive economic news and digested testimony from Federal Reserve chairman Ben Bernanke.
The Dow Jones industrial average () rose 28 points, or 0.2%, to end at 12,980. The S&P 500 ( ) added 8 points, or 0.6%, to 1,374. The Nasdaq ( ) advanced 22 points, or 0.7%, to 2,989.
Stocks opened higher following upbeat reports on initial jobless claims and personal income and spending. But the market pared gains after an index of U.S. manufacturing activity came in weaker than expected.
The ISM manufacturing index was "quite disappointing," said Peter Cardillo, market strategist at Rockwell Global Capital. But the index still signaled expansion in the sector, and other economic indicators Thursday were "consistent with better economic growth," he added.
Investors also welcomed strong sales growth from retailers and auto makers.
Meanwhile, Bernanke warned lawmakers that their short-term policies could put the recovery at risk.
Echoing previous testimony, the central bank chief called the job market "far from normal" and referred to the recovery as "uneven and modest by historical standards."
On Wednesday, Bernanke's remarks dashed hopes that the Fed will continue to offer monetary support to the market, sending U.S. stocks modestly lower.
Elsewhere, worries about the European debt crisis continue to loom in the background. European leaders will gather in Brussels on Thursday for a two-day summit to determine the size of their financial firewall, and to discuss the details of a pact on fiscal discipline.
Euro-area officials tentatively approved a second €130 billion bailout for Greece last week, and the European Central Bank announced Wednesday that it loaned €529.5 billion to European banks through a second long-term refinancing operation.
The close watch on the global oil market and rising gas prices continued Thursday, as gas prices climbed for the 23rd straight day to just below $3.74 a gallon.
Economy: The ISM manufacturing index fell 1.7 points to 52.4 in February. The index, based on a survey of purchasing managers, was expected to have risen to 54.7. Any reading above 50 signals expansion.
Separately, construction spending fell 1% in January, according to the U.S. Census Bureau.
Initial jobless claims for the week ended Feb. 25 fell 2,000 to 351,000 -- coming in below expectations.
Personal income rose 0.3% in January, while spending edged up 0.2%. Economists were expecting income and spending to have increased by 0.4% each.
Analysts and industry executives said it looks like the annual pace of U.S. sales should come in at or near 15 million vehicles when adjusted for seasonal factors. That would be a big jump from the 14.1 million annual sales rate in January and the best pace of sales since March 2008.
Meanwhile, retailers reported February same-store sales growth that beat analysts' expectations, according to preliminary estimates from Thomson Reuters.
Same-store sales for most of the companies Reuters tracks rose 4.7% in February, compared with a forecasted 3.4% rise.
Gap () shares jumped after the retailer said sales rose 6% in February.
Shares of Wal-Mart (Fortune 500) lost ground, after the company raised its annual dividend 9% to $1.59 per share.,
Shares of Wendy's () eased after the fast food chain beat earnings estimates by a penny. The company also topped sales estimates.
Grocery chain Kroger's (Fortune 500) stock gained thanks to better-than-expected fourth-quarter results.,
World markets: European stocks closed higher. Britain's FTSE 100 ( ) added 1%, the DAX ( ) in Germany gained 1.2% and France's CAC 40 ( ) ticked up 1.4%.
Asian markets ended lower. The Shanghai Composite () slid 0.1%, while the Hang Seng ( ) in Hong Kong dropped 1.4% and Japan's Nikkei ( ) lost 0.2%.
Investors are also digesting indications that China's economy is improving. China's official purchasing managers' index rose to 51 in February from 50.5 the prior month, suggesting that the manufacturing sector is expanding -- albeit slowly.
A separate PMI report from banking company HSBC also showed manufacturing activity edged up last month. But the index reading of 49.6 was just below the 50 threshold for expansion in the sector.
Oil for April delivery rose $1.77 to settle at $108.84 a barrel.
Gold futures for April delivery rose $10.90 to end at $1,722.20 an ounce.
Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 2.05% from 1.98% late Wednesday.
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