Big banks boost stocks

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NEW YORK (CNNMoney) -- U.S. stocks advanced for a third straight session Thursday, rising to fresh six-month highs, thanks to solid gains in financial shares.

The Dow Jones industrial average (INDU) added 46 points, or 0.4%, the S&P 500 (SPX) rose 6 points, or 0.5%, the Nasdaq composite (COMP) increased 19 points, or 0.7%. All three indexes closed at the highest levels since July.

A 2.4% spike in shares of Bank of America (BAC, Fortune 500) led the Dow higher. The Charlotte, N.C., bank posted fourth-quarter net income of $2 billion, reversing a year-earlier loss, and revenue that topped expectations

Morgan Stanley (MS, Fortune 500) posted a loss, but it wasn't as deep as analysts had expected, and shares of the bank surged 5.4%.

"The positive bank results were really unexpected," said Tyler Vernon, chief investment officer at Bilmore Capital. "The past six months have been a terrible environment for banks, but it looks like things are getting better, which is generally better for the economy, too."

Meanwhile, the government released an onslaught of economic data, including reports on housing, unemployment claims and inflation. Investors were encouraged as initial jobless claims fell to their lowest level in nearly four years, in another sign of improvement in the long-suffering labor market.

However, concerns that the sharp drop may be one-time blip rather than a start of a new trend kept a lid on gains, said Vernon.

"Traders are concerned about seasonality factors, and worried that claims could return to the status quo over the next couple of weeks, so they'll wait to see what happens," he said.

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U.S. stocks advanced to finish at six-month highs Wednesday, as investors welcomed the International Monetary Fund plan to boost its bailout fund and contain Europe's debt crisis.

Investors remain focused on Europe's crisis this week. Early Thursday, Spanish and French bond auctions drew solid demand, calming some fears about Europe's ability to fund its debt.

Greek officials continued talks on Thursday with the group representing private-sector investors and banks in an attempt to reach an agreement on the size of the writedown these creditors will take. No accord has yet been announced, but the creditors' representative says negotiations will continue Friday.

World markets: European stocks finished higher. Britain's FTSE 100 (UKX) ticked up 0.7%, the DAX (DAX) in Germany rose 1% and France's CAC 40 (CAC40) added 2%.

Asian markets ended notably higher. The Shanghai Composite (SHCOMP) and the Hang Seng (HSI) in Hong Kong both climbed 1.3%, while Japan's Nikkei (N225) gained 1%.

Economy: The government released December data on inflation, building permits and housing starts, as well as its latest tally of weekly jobless claims.

The Labor Department reported that 352,000 people filed for initial unemployment benefits last week, down sharply from a revised reading of 402,000 claims in the previous week. It is also the fewest number of people filing for jobless claims since the week ending April 19, 2008.

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Consumer prices held steady last month, largely due to declining gas prices. The government's key measure of inflation, the Consumer Price Index, showed prices were virtually unchanged from November to December.

The index for items minus food and energy rose 0.1% in December, after rising 0.2% in November.

Housing starts fell 4.1% in December, to an annual rate of 657,000 units. Building permits slipped 0.1% to an annual rate of 679,000.

The Philadelphia Fed Index showed that manufacturing activity continued to improve in January in the mid-Atlantic area, rising to 7.3 from 6.8 in December.

Companies: Bank stocks gained traction in early trading, with shares of Goldman Sachs (GS, Fortune 500) rising 3.2%, a day after the firm reported earnings that beat estimates.

Citigroup (C, Fortune 500) and JPMorgan Chase (JPM, Fortune 500) both filed disappointing results in the past week, while Wells Fargo (WFC, Fortune 500) reported solid earnings.

Eastman Kodak (EK, Fortune 500) filed for Chapter 11 bankruptcy protection Thursday. Once a component of the Dow Jones industrial average, the company was recently trading around 39 cents a share.

UnitedHealth Group (UNH, Fortune 500) reported fourth-quarter earnings that beat forecasts.

Following Thursday's closing bell, some of the nation's biggest tech firms reported their corporate results, including Google (GOOG, Fortune 500), IBM (IBM, Fortune 500), Intel (INTC, Fortune 500) and Microsoft (MSFT, Fortune 500).

Shares of Google tanked in after-hours trading, after the search giant reported quarterly profit and sales that rose from year-ago results but badly missed Wall Street's forecasts.

Shares of IBM rose in after-hours trading as the company began the Ginni Rometty era on a positive note, posting fourth-quarter earnings that beat estimates.

Microsoft and Intel shares also gained ground in after-hours trading after the companies posted solid fourth-quarter earnings.

Currencies and commodities: The dollar fell against the euro and British pound, but edged higher against the Japanese yen.

Oil for February delivery slipped 20 cents to settle at $100.39 a barrel.

Gold futures for February delivery ticked down $5.40 to settle at $1,654.50 an ounce, losing momentum from earlier gains.

Bonds: The price on the benchmark 10-year U.S. Treasury fell, pushing the yield up to 1.99% from 1.90% late Wednesday.