Updated from 4:03 p.m. EDT

Stocks in New York mounted a late rally Thursday as traders responded to a decline in oil prices, mixed economic data and a speech by Treasury Secretary Henry Paulson.

All three major indices climbed after waffling around the baseline for a good part of the session. The

S&P 500

was up 5.02 points, or 0.4%, at 1342.83, while the

Dow Jones Industrial Average

rose 34.03 points, or 0.3%, at 12,063.09. The

Nasdaq

had the largest move higher, up 32.36 points, or 1.3%, to 2462.07.

Prior to the start of the session, the Labor Department said jobless claims for the week ended June 14 declined by 5,000 to 381,000, but came in higher than analysts' expectation of 375,000 and remain at elevated levels.

Turning to commodities, crude oil finished down $4.75, or 3.5%, to $131.93. China announced that it would raise retail gas and diesel prices by an unexpected 18%, in a move that is expected to curb what had been skyrocketing demand in the fast-growing economy. Gasoline prices continued to tick down, to $4.073 from $4.075 Wednesday. Gold finished the day up $10.70 at $904.20.

The energy sector experienced a selloff as oil declined.

Petrobras

(PBR) - Get Report

and

Occidental Petroleum

(OXY) - Get Report

were among the stocks trading lower.

Investors were also chewing over manufacturing data from the Philadelphia

Federal Reserve

. Released midmorning, the Philly Fed's Business Outlook Survey's index of business conditions for June fell to negative 17.1 from minus 15.6 in May. The index revealed a much weaker outlook than analysts' prediction of negative 10.

"The index is performing better than was the case during the past two recessions," wrote Tony Crescenzi, chief bond market strategist at Miller Tabak and a contributor to

TheStreet.com's

sister site,

RealMoney.com

. "In the months leading up to the 2001 recession, for example, the index on general business conditions fell to as low as -37.2. During the 1990 recession, the index fell to as low as -48.2.

"Factory output will likely be underpinned in the summer months by the recent uptick in retail sales, which, in the context of lean business inventories, will likely lead to re-stocking, even if only temporarily," wrote Crescenzi.

Treasury Secretary Henry Paulson also

spoke on regulatory changes in the financial markets

that would expand the Fed's role in preventing a potential failure like the one faced by

Bear Stearns

earlier this year. Paulson said that high oil prices would continue to prolong the U.S.'s economic slowdown. He said that the economy would slowly recover from its current slump, although such a rebound would take time and called for increased authority for the Fed to help the U.S. financial system in times of crisis.

"You need to extend credit to these investment banks. Otherwise they're going to blow up the system," said Doug Roberts, chief investment strategist for ChannelCapitalResearch.com. "If you're going to make insurance available, you're going to have to regulate them, and make them pay for the insurance."

Paulson's pronouncements came on the heels of continuing trouble for the financials. Two former Bear Stearns fund managers

were arrested today

on charges stemming from significant bets their hedge fund made on subprime paper.

Separately, hundreds of real estate industry employees have recently been indicted in a Justice Department investigation into mortgage fraud.

Citigroup

(C) - Get Report

CFO Gary Crittenden announced that the bank could face significant second-quarter writedowns related to Citi's exposure to subprime mortgages, leveraged buyout loans and other assets. Other banking blue-chips

Bank of America

(BAC) - Get Report

and

JPMorgan Chase

(JPM) - Get Report

were also trading lower.

Elsewhere in the space, shares of

UBS

(UBS) - Get Report

were hit on a Credit Suisse downgrade to neutral from outperform.

Ducking the sector selloff, insurance behemoth

American International Group

(AIG) - Get Report

shares climbed slightly on a Citigroup upgrade to buy from hold.

In autos, billionaire investor Kirk Kerkorian raised his stake in

Ford

(F) - Get Report

to 6.49% and announced he would provide additional capital to facilitate the company's turnaround. Meanwhile,

General Motors

(GM) - Get Report

will delay redesigns for its SUVs and trucks as it moves toward more fuel-efficient products, a report said. GM is reviewing its product portfolio in the wake of declining demand for its heavier, less-fuel efficient offerings, a spokesman told

The Wall Street Journal

.

Boeing

(BA) - Get Report

shares received a slight boost after the Government Accountability Office approved of its protest of a $35 billion Air Force contract awarded to competitors

Northrop Grumman

(NOC) - Get Report

and

European Aeronautic Defense and Space

.

In the technology area,

Hewlett-Packard

(HPQ) - Get Report

announced it would reorganize its highly profitable printer unit in the face of declining growth for the business.

Apria Healthcare

( AHG) shares soared on a $1.6 billion buyout by private equity firm Blackstone Group. The price represents a 33% premium over Apria stock's Wednesday closing price.

Other health services stocks were hurting on an earnings warning from

Coventry Health Care

( CVH).

Aetna

(AET)

and

WellPoint

(WLP)

fell along with Coventry.

Airline companies

Continental

(CAL) - Get Report

and United parent

UAL

(UAL) - Get Report

announced that the two would work together to expand their networks and combat rising costs. Continental would also join United in the Star Alliance, the companies said. Continental and UAL both rose more than 15%.

Meanwhile, the Agriculture Department projected that cereal, sugar and poultry prices are set to increase at a higher-than-expected rate. The USDA cited increased global demand for U.S. food products as well as crop-damaging floods in the Midwest as causes for the continued price inflation.

Markets overseas were mixed. Tokyo's Nikkei and the Hong Kong Hang Seng dropped more than 2%, while in Europe, the FTSE was slipping 0.8%, and the DAX was down 0.1%.

Bond prices were declining. The 10-year note was down 20/32 to yield 4.22%, and the 30-year bond was lower by 24/32 to yield 4.76%.

The dollar fell slightly against the euro and was fractionally higher against the yen and the pound.