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The Nasdaq outperformed the market after Cisco shares jumped nearly 10 percent and Apple Inc shares hit a new closing high of $636.34, while broad gains across most S&P 500 sectors offset a gloom from Wal-Mart Stores Inc.
The day's gain was the first significant move since a 2 percent gain on Aug 3. Since then, the S&P 500 has been moving mostly higher, but in a slow motion.
"I think the biggest plus today is the fact that people realize that we are now really in an upward trend. We faced resistance but for over a week, we moved higher slowly without a significant pullback. That is what's pulling people in, although volume remains low," said Frank Gretz, market analyst at Wellington Shields & Co in New York.
"Some say we are climbing the 'wall of worry.' I think we are climbing the wall of low expectations. Because nobody is expecting anything good, it is easy to move up on any news."
Merkel said ECB chief Mario Draghi's vow to do all that is necessary to defend the euro is in line with what European leaders have been saying. Some traders took that as a sign Germany may be drawing nearer to backing purchases of sovereign bonds of troubled European nations such as Spain.
Facebook Inc fell to a new low of $19.69 as shares hit the market after the expiration of a lockup period, which had prevented sales by some insiders. The stock ended down 6.3 percent at $19.87.
Cisco Systems Inc rose 9.6 percent to $19.02 after the company said it would hike its dividend 75 percent after surprisingly strong results late Wednesday. The dividend increase countered a gloomy outlook from Cicso on the debt crisis and recession in Europe.
But gains were capped as Wal-Mart shed 3.1 percent to $72.15. The world's largest retailer posted a bigger-than-expected jump in quarterly profit but forecast full-year earnings that could fall short of Wall Street expectations.
Thomson Reuters data shows that of the 468 companies in the S&P 500 that have reported earnings through Thursday morning, 68 percent beat analysts' expectations, about the same rate as over the past four quarters.
Earnings were the bigger driver given the economic data was largely in line with forecasts. The number of Americans filing new claims for jobless benefits edged higher last week although the gauge of a longer trend fell close to a four-year low, indicating a slowly healing jobs market.
But housing starts unexpectedly dropped 1.1 percent last month as the industry continues to have trouble finding its footing despite some recent signs of life in the sector.
The S&P capped its longest string of gains since December 2010 on August 10, boosted by expectations of more stimulus from central banks in the United States and euro zone in September to stimulate their respective economies.
Retailer Sears Holdings Corp reported a quarterly loss in line with Wall Street estimates as lower expenses offset weak sales. Shares rose 6.5 percent to $60.29.
Dollar Tree fell 1.8 percent to $49.11 after the discount retailer posted second-quarter earnings and forecast quarterly earnings and sales below analysts' expectations.
About 5.82 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq on Thursday, well below last year's daily average of 7.84 billion.
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