NEW YORK (CNN/Money) - Blue chips rallied for a second session Thursday on better-than-expected economic reports and positive comments out of automaker General Motors, but weakness in chip and networking issues kept techs out of the loop.

The Dow Jones industrial average gained 155.30, or 1.98 percent, to 7,997.12. The Standard & Poor's 500 index gained 15.29, or 1.82 percent, to end the day at 854.95. But the Nasdaq composite lost 0.68, or 0.06 percent, to close at 1,221.61.

"This is the last full week of the quarter and yesterday (Wednesday), after two down days, the market rallied and I think there was a continuation of that momentum today (Thursday)," John Pickett, a specialist at LaBranche & Co. told CNNfn's Street Sweep. "I would have expected the rally to continue tomorrow, but I think this after-hours news may put a break on it."

After the close of trade, tobacco products maker Philip Morris (MO: up $1.25 to $42.73, Research, Estimates), a Dow component, warned that 2002 profits will come in lower than expected. Shares of the stock lost $3.98 to $38.75 in after-hours trade.

For 2002, the company expects three percent-to-five percent growth, when analysts expect 20 percent, or earnings per share between $4.16 and $4.24 when analysts currently expect $4.82. The company blamed sluggish sales and higher spending on promotion. However, for the third quarter, the company expects earnings per share of $1.26, a penny better than current estimates.

In addition, phone provider and Dow component SBC Communications (SBC: down $0.69 to $21.90, Research, Estimates) said after the bell that it is cutting 11,000 jobs, with 9,000 of the cuts expected in the fourth quarter and the duration due in early 2003.

Blue chip stocks rallied Thursday after a trio of economic reports came in better than expected. The number of new jobless claims dipped more than expected, while new home sales held steady and durable goods orders fell less than anticipated. Positive comments from General Motors regarding its European unit added to the upward move.

It was the second day of gains for the Dow, with stocks enjoying a bounce after hitting a multiyear low on Tuesday.

But warnings from several telecom gear makers and a negative brokerage note on No. 1 networking issue Cisco kept tech stocks spinning their wheels.

"The market has been pretty oversold and pessimism was and continues to be widespread, so the slight improvement in the economic data this morning and the fact that the Fed kept interest rates unchanged speaks to that pessimism for now," said Robert Phillips, chief investment officer at Walnut Asset Management. "But tech continues to suffer, when other sectors are doing fine today (Thursday)."

The number of Americans filing new claims for unemployment benefits dropped unexpectedly to 406,000 last week from a revised 430,000 the previous week, a five-week low, the government said. Jobless claims have been increasing of late and economists surveyed by Briefing.com were expecting only a minor decline to 420,000.

August new home sales gained 1.9 percent to a 996,000-unit annual rate from a downwardly revised 977,000 rate in July. Economists were expecting a decline to an annual rate of 980,000.

In addition, durable goods orders fell 0.6 percent in August, when economists expected a 3.4 percent drop. In July, orders rose a downwardly revised 8.6 percent.

"The market has been miserable of late, so it's not surprising that we're seeing a little bounce now, aided by the three economic reports," said Michelle Clayman, chief investment officer of New Amsterdam Partners. "The economic news isn't great, but it's not awful, so that helps."

In corporate news, shares of General Motors (GM: up $1.95 to $41.52, Research, Estimates), a Dow component, rallied after the automaker's chief financial officer told Reuters that he though the European auto market would pick up 2-to-3 percent in 2003 from an expected 5 percent drop in 2002 and that the U.S. market probably will come out at roughly the same level next year as this year. Separately, the company said its European unit still aims to break even in 2003 as it develops new products, despite missing estimates in 2002.

Shares of troubled air carrier United Airlines (UAL: up $0.73 to $2.94, Research, Estimates) rose, pulling up the rest of the sector, after representatives of five unions said early Thursday that they would be willing to allow the company to cut labor costs by about $5 billion over five years, but would not agree to the carrier's proposed $9 billion cut over six years.

But countering the positive momentum was weakness in Hewlett-Packard (HPQ: down $0.77 to $12.07, Research, Estimates). Brokerage Thomas Weisel trimmed its third-quarter revenue and earnings per share estimates and fourth-quarter revenue estimates on the stock, saying holiday sales have been slow and enterprise sales remain weak. On Wednesday, the computer hardware and printer maker said that it would have to cut 1,800 jobs.

But techs retreated a bit following an early session runup, with telecom and networking stocks leading the decline.

Two telecommunications gear makers, Nortel Networks (NT: down $0.07 to $0.57, Research, Estimates) and Redback Networks (RBAK: down $0.32 to $0.43, Research, Estimates), both warned late Wednesday that third-quarter revenue will miss expectations due to further erosion in spending for wireless networks.

The news impacted other telecom and networking companies, such as Cisco (CSCO: down $0.60 to $11.36, Research, Estimates). The No. 1 network gear provider also suffered on a mixed Goldman Sachs note, in which the brokerage said that the October quarter is challenging, due to weak enterprise spending, especially in Japan and Europe, but the back-end loaded nature of the quarter makes it too early to say whether the company will meet estimates.

Software storage maker Brocade (BRCD: down $2.04 to $8.33, Research, Estimates) fell sharply after the company failed to offer forward-looking guidance during an otherwise positive presentation at a Banc of America Securities investor conference. In addition, a false rumor that Salomon Smith Barney was making negative comments on the stock contributed to the selling. Sector mates EMC (EMC: down $0.76 to $5.25, Research, Estimates) and QLogic (QLGC: down $3.25 to $26.58, Research, Estimates) were hit in tandem.

However, retailers were strong after homewares retailer Bed, Bath & Beyond (BBBY: up $0.83 to $34.51, Research, Estimates) reported a second-quarter profit of 25 cents per share, 2 cents better than estimates and better than the 18 cents per share earned a year earlier.

Treasury prices were a little lower, pushing the 10-year note yield up to 3.77 percent. The dollar drifted a little lower versus the yen and the euro. Light oil futures fell 23 cents to $30.41 a barrel, while gold fell.

Market breadth was positive. On the New York Stock Exchange, winners topped losers 11-to-5 as 1.59 billion shares changed hands. On the Nasdaq, winners beat losers 6-to-5 as 1.64 billion shares traded.