Banks, Oils Lift Stocks

All three major averages close higher, but off highs of the day, with financials and energy leading the way. A 30-year Treasury auction finds good demand.
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Updated from 4:24 p.m. EDT

The major indices in New York pared gains but still closed modestly higher on Thursday as financials and energy stocks offset a decline in the housing sector, with some help from better-than-expected demand in the Treasury's 30-year bond auction.

The

Dow Jones Industrial Average

finished up 31.90 points, or 0.4%, at 8770.92, while the

S&P 500

was higher by 5.74 points, or 0.6%, at 944.89. The

Nasdaq

was better by 9.29 points, or 0.5%, at 1862.37.

Alcoa

(AA) - Get Report

and

Pfizer

(PFE) - Get Report

were up 6.4% and 4.1%, respectively, on the Dow. But it was

Bank of America

(BAC) - Get Report

, rising 8.3%, that led the index after an upgrade.

Financials in general were higher, with the KBW Bank Index adding 2.6%.

UBS

(UBS) - Get Report

rose 3.8%;

Credit Suisse

(CS) - Get Report

added 2.2%; and

Deutsche Bank

(DB) - Get Report

added 2.8%.

Stocks got a boost after the U.S. Treasury wrapped up the last leg of a $65 billion Treasury auction. The government sold $11 billion in 30-year notes with a bid to cover of 2.68 vs. the recent average of 2.21, and a high yield of 4.72%. The bid to cover ratio, a gauge of interest, is the number of bids received divided by those accepted.

Thursday's more favorable auction follows the Treasury's $19 billion auction of 10-year notes on Wednesday, which had a high yield of 3.99%, more than some traders had expected, prompting some worries about rising interest rates.

Longer-dated Treasuries were rising in price. The 10-year was up 22/32, yielding 3.86%, while the 30-year was higher by 1-1/32, to yield 4.69%.

Although the market hasn't moved significantly to the upside in recent days, there also hasn't been the sizable pullback many observers have anticipated for weeks.

"I think we're in the midst of a summer rally, even though we'll probably continue to endure light volume," says Peter Cardillo, chief market economist, Avalon Partners. "The market is focusing on recovery, and with the still hefty amount of cash on the sidelines, I think it continues during the summer months."

The Department of Labor offered some signs of economic improvement -- or at least a slowing in deterioration --- early Thursday reporting that initial

jobless claims

fell to 601,000 last week, from and upwardly revised 625,000 the week prior. Expectations were for 615,000 new claims. Still, continuing claims increased 59,000 last week to 6.816 million.

Meanwhile, the Commerce Department said retails sales altogether and factoring out autos both increased 0.5% in May, after an upwardly revised 0.2% decline in April. Expectations were for the 0.5% increase overall, but for just an 0.2% increase ex-autos.

The Commerce Department also reported that business inventories declined by 1.1% in April, vs. expectations for a 1% decline and after a revised 1.3% dropdown in March.

It will probably be two more months before we see a number that signals a build in inventory, says Marc Pado, U.S. market strategist Cantor Fitzgerald, "but we're getting anecdotal evidence through orders and also company statements." The increase in new orders in May is likely to cause inventory to deplete further setting it up to start to rebuild thereafter, as early as June, he says.

In other data Thursday, RealtyTrac said foreclosure filings fell 6% in May from April, but were up 18% year over year. May marked the third highest level of foreclosure activity on record.

For those looking to buy a house, the news wasn't particularly sunny. Freddie Mac said 30-year mortgages averaged 5.59% for the week ended June 11, up from 5.29% last week and the highest since November 2008. Adjustable-rate mortgages also increased -- the average one-year ARM is now 5.04%.

The housing sector was not in great shape Thursday:

Toll Brothers

(TOL) - Get Report

fell 2.5%;

Pulte Homes

(PHM) - Get Report

lost 5.7%;

Centex

(CTX)

fell 5.4%; and

Lennar

(LEN) - Get Report

shed 5.3%.

In corporate news, Bank of America CEO Ken Lewis testified before Congress on whether he was pressured by the Treasury and

Federal Reserve

to go through with the acquisition of Merrill Lynch in the face of massive losses as well as when he was aware of those losses.

KBW upgraded

Bank of America

to outperform from market perform on Thursday. At the same time, Bernstein raised its rating for

Goldman Sachs

(GS) - Get Report

and

Morgan Stanley

(MS) - Get Report

to outperform, raising its price target for Goldman to $176 from $113.

Also,

Palm

(PALM)

shares surged more than 12% higher after the company confirmed Thursday that Chief Executive Ed Colligan is stepping down to be replaced by Jon Rubinstein, a former

Apple

(AAPL) - Get Report

executive who's been atop Palm's revitalization efforts. Aside from that change, there were also reports that it is preparing

Pixie

, a lower-priced follow-up to its buzzing Pre phone.

Elsewhere, commodities stayed in the spotlight as crude oil rose $1.35 to $72.68 a barrel. The International Energy Agency said on Thursday that the slump in global oil demand for the year may be less severe than previously expected, the first upward revision to its estimates in 10 months. That follows an inventory drawdown last week and an improved forecast form the Energy Information Administration earlier in the week.

Among oil stocks,

Chevron

(CVX) - Get Report

rose 2.4%,

Chesapeake Energy

(CHK) - Get Report

increased 1.6%, and

PetroChina

(PTR) - Get Report

rose 2%.

The dollar was recently stronger vs. the yen, pound and euro. Gold, meanwhile, rose $7.30 to $962.

Stocks overseas were mostly higher. In Europe, London's FTSE 100 and Frankfurt's Dax were up 0.6% and 1.1%, respectively. Japan's Nikkei edged down 0.1%, while Hong Kong's Hang Seng climbed 0.03%.