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Stocks Finish Higher on Return of European Optimism

NEW YORK ( TheStreet) -- Stocks finished Thursday in positive territory as improved European headlines overshadowed poor U.S. economic data.

The Dow Jones Industrial Average added 22 points, or 0.2%, at 12,471. The S&P 500 rose 3 points, or 0.2%, at 1296. The Nasdaq increased 13.9 points, or 0.5%, at 2725.

"It looks like traders are just being optimistic and trying to exploit a clear pattern rather than developing any big-picture views," said RealMoney contributor James "Rev Shark" DePorre.

Before the opening bell, two reports on the U.S. economy stole some of the focus away from Europe before improving news from the region began taking back some of the spotlight. The Commerce Department said that U.S. retail sales for December slumped to their weakest read since May 2011. Sales rose 0.1% in December, compared to a revised 0.4% rise in November. Economists had expected sales to rise 0.3% with the help of discounts during the holiday season. Retail sales excluding car sales dropped for the first time since May 2010, declining 0.2% in December after rising 0.3% in the prior month.

Business inventories also came in lower than expectations for December. The Commerce Department said that inventories rose 0.3%, compared to the 0.4% gain forecasted. The increase extends a 0.8% gain from October.

Initial jobless claims in the first week of January bounced up near 400,000. The Labor Department said that claims rose by 24,000 to 399,000, was slightly higher than economists' expectations for 375,000, according to a poll by Thomson Reuters. The prior week's figure was upwardly revised to 375,000 from 372,000.

In Europe, positive outcomes from government debt sales were fueling hopes that the region could deal with its high borrowing costs. Spain sold 9.89 billion euros of bonds maturing within the next four years after setting a goal of selling 5 billion euros. Meanwhile, Italy sold off 8.5 billion euros of one-year bills at a yield of 2.735%, down from 5.952% in a similar auction held last December. Before the opening, both the Bank of England and the European Central Bank kept key interest rates steady, as economists had expected.

Germany's DAX finished up 0.44% while London's FTSE closed down 0.15%. Japan's Nikkei Average settled 0.74% lower, and Hong Kong's Hang Seng was down 0.3%.

U.S. equities closed mixed Wednesday amid concerns about deteriorating growth in eurozone economies. However, domestic stocks were somewhat able to decouple themselves from losses in European equities, as the S&P 500 and Nasdaq managed to edge above the flat line.

In corporate news, Chevron (CVX - Get Report), the oil giant, said it expects fourth-quarter earnings to come in "significantly below" the third quarter because of the impact of lower margins and refinery input volumes in its downstream business. Analysts expect Chevron to earn $3.28 a share in the fiscal fourth quarter. It earned $3.67 a share in the third quarter. Shares were off 2.6% to $104.97.

Williams-Sonoma (WSM - Get Report) plunged 12.2% to $34.32 after the company lowered its full-year and fourth-quarter guidance despite better holiday sales, as high promotional activity limited profit. Though the company reported that net revenue for the eight-week holiday period ended Dec. 25 increased 4.2% to $901 million, the company cut fourth-quarter earnings projections to $1.10 to $1.15 a share, from a previously estimated $1.15 to $1.20 a share. The company also cut fiscal year 2011 forecasts to earnings of $2.16 to $2.21 a share from the $2.21 to $2.26 share predicted in November.

Royal Bank of Scotland (RBS - Get Report) plans to cut 3,500 jobs as it scales back its investment banking arm. RBS said the cuts, largely in its global banking and markets division, will be phased in over three years. The bank is 83%-owned by the U.K. government. The job cuts announced Thursday now add to 2,000 job cuts announced last summer. Shares were up 5.4% to $7.17.

Regions Financial (RF - Get Report) said it would record a goodwill impairment charge of $575 million to $745 million in the fourth quarter from the $930 million sale of its Morgan Keegan brokerage unit to Raymond James Financial (RJF - Get Report). Regions is expected to report earnings on Jan. 24, and expects to lose as much as $633 million -- or up to 50 cents a share -- in the fourth quarter of 2011 because of the goodwill charge. Shares were down 2.3% to $4.69.

Tractor Supply (TSCO - Get Report) boosted its earnings outlook late Wednesday for the full year following a strong sales performance in the fourth quarter. The Brentwood, Tenn.-based company now sees earnings of $2.97 to $2.99 a share for fiscal 2011, up from its previous projection for a profit of $2.85 to $2.89 a share. The current average estimate of analysts polled by Thomson Reuters is for earnings of $2.91 a share in fiscal 2011. The company's outlook implies a profit range of 92 to 94 cents a share for the fourth quarter ended in December, compared to Wall Street's current consensus view of 86 cents. Shares soared 10% to $80.20.

The Obama administration will likely block Omnicare's (OCR) proposed $716 million offer for PharMerica (PMC - Get Report), the New York Post reported, citing a source close to the situation. Omnicare, the pharmacy services provider, said Wednesday it wouldn't complete its $15 a share offer until the FTC says it has reached the end of its investigation. Shares were off 7% to $32.90.

February oil futures fell $1.77 to close at $99.10 a barrel. In other commodities, February gold futures added $8.10 to settle at $1,647.70 an ounce, gaining alongside the euro, which was spiking on the news that Spain and Italy both borrowed at low yields.

The dollar index was down 0.6%. The benchmark 10-year Treasury was falling 5/32, raising the yield to 1.928%.

-- Written by Andrea Tse and Chao Deng in New York.

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Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

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