Late Rally Lifts Wall Street

Stocks were flat to lower for much of the day, but the averages close with gains.
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Updated from 4:36 p.m. EDT

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Stocks ended at their best levels of the session Thursday, as a late-day technical rally pushed the averages higher. The market spent much of the session hovering around the flatline or in negative territory, despite a slightly better-than-expected reading on second-quarter economic growth.

After fluctuating for much of the day, the

Dow Jones Industrial Average

closed up 40.42 points, or 0.4%, to 9374.21. The

Nasdaq

rose 18.05 points, or 1%, to 1800.18, and the

S&P 500

ended up 6.05 points, or 0.6%, at 1002.84.

Traders attributed the late-afternoon surge to a technical breakout on the S&P 500. "The index had been testing 1000 all day long," said Tom Schrader a trader at Legg Mason. "When it rose above that level, it triggered some buying programs and added momentum to the market."

Technology stocks continued their winning streak, as the Nasdaq remained at its highest level in more than 16 months. Volume was on the light side again, with 1.16 billion shares changing hands on the

New York Stock Exchange

and about 1.45 billion shares moving on the Nasdaq.

"On these light-volume days, the market can get pushed around very easily," said Tim Anderson, a trader at Salomon Smith Barney. "There are probably still a lot of institutional money managers that are underinvested. I think people will be surprised to the upside in September."

The 10-year Treasury note rose 29/32, while the yield fell to 4.42%. It rose above 4.5% Wednesday, but settled down from that level. (For an in-depth look at Thursday's bond market, please

click here.) The dollar was little changed vs. the yen and the euro.

Within sectors, oil, semiconductor, transportation, banking and high-tech stocks finished higher, while utility, pharmaceutical and gold issues ended lower.

Earlier, the Commerce Department said gross domestic product rose at a 3.1% annualized pace in the second quarter, up from its initial estimate of 2.4% and well above the first quarter's 1.4% growth rate. Most of the gain was attributable to government defense spending, but consumer outlays -- particularly for durable goods -- made up a big part of the increase.

"Some people were expecting this result," said Taai Izushima, a trader at Daiwa Securities. "And so we

saw them sell the news." Economists had forecast a 2.9% revision.

Moreover, Izushima said there may be some concern about GDP growth in the second half of the year, when the government is expected to spend less on military purchases.

In a separate report, the Labor Department said first-time jobless claims rose by 3,000 in the latest week, but held below the key 400,000 level at 394,000. The four-week average edged up to 396,250 from 395,750. Continuing claims increased by 26,000 to 3.657 million.

Investors will get more perspective on the labor market, when the government releases its monthly jobs report next week. "Everyone is wondering if we have an employment problem," said Izushima.

Alternative energy stocks finished mixed amid reports of an evening power outage in London's financial district.

Ballard Power

(BLDP) - Get Report

gained 2 cents, or 0.2%, to $12.92, while

Active Power

(ACPW)

lost 7 cents, or 3%, to $2.31.

Among the day's other corporate news, two explosions knocked out windows at a

Chiron

(CHIR) - Get Report

office in Emeryville, Calif. Nobody was hurt. Chiron, a biotech company that has occasionally been the focus of animal rights activists, closed up 14 cents, or 0.3%, to $50.40.

Biotech company

Amgen

(AMGN) - Get Report

will make a one-time payment to rival

Genentech

(DNA)

to settle a dispute over drug-patent infringement. Amgen shed 54 cents, or 0.8%, to $66.28, while Genentech rose 60 cents, or 0.8%, to $79.75.

After upbeat sales guidance earlier this week,

Sears

(S) - Get Report

said Thursday it will take a charge of between $75 million and $100 million in the current quarter to account for the closing of underperforming stores, impairment charges and other related costs. Shares gained 4 cents to $43.69.

Analysts were active. Goldman Sachs upgraded

GM

(GM) - Get Report

to in-line from underperform, while downgrading

Ford

(F) - Get Report

to underperform from in-line. The firm sees GM as less overvalued than Ford and expects GM to revise near-term earnings upward. GM rose $1.01, or 2.6%, to $40.41, while Ford fell 20 cents, or 1.7%, at $11.44.

One of the day's biggest movers, network-equipment maker

Redback

(RBAK)

advanced 5 cents, or 17.2%, to 35 cents after the Nasdaq said it would allow the stock to continue trading, even though it remains below the minimum bid price requirement of $1. The company now has until Oct. 11 to comply with the rule.

Shares of

PetsMart

(PETM)

gained $2.28, or 10.9%, to $23.34 after the company said second-quarter earnings were up from year-ago levels.

Retailer

Chico's FAS

(CHS) - Get Report

reported that its profit rose almost 50% on strong sales. The stock advanced $2.75, or 9.5%, to $31.65.

Dollar General

(DG) - Get Report

added $1.60, or 7.7%, to $22.52 after the discount retailer said earnings were up 41% in the second quarter. The company also boosted its outlook for the remainder of the year.

Michaels Stores

(MIK) - Get Report

finished ahead by $5.33, or 13.5%, to $44.76, a day after it reported higher second-quarter earnings.

FleetBoston Financial

said it will pay $211 million for regional bank

Progress Financial

(PFNC)

. FleetBoston closed down 11 cents, or 0.4%, to $29.61 on the news, while Progress Financial soared $9.73, or 58%, to $26.95.

VA Software

(LNUX)

climbed 26 cents, or 8.4%, to $3.38 after the company narrowed its fourth-quarter loss on a 42% increase in sales.

Disk-drive maker

Western Digital

(WDC) - Get Report

said it expects to break even in its first quarter, and that its Read-Rite acquisition should be accretive to earnings ahead of its previous guidance. Shares rallied $1.98, or 21%, to $11.48.

Overseas markets finished mixed. London's FTSE 100 fell 0.2% to 4198, while Germany's Xetra DAX gained 0.3% to 3492.7. In Asia, Japan's Nikkei shed 0.8% to 10,225, and Hong Kong's Hang Seng rose 0.8% to 10,760.

Stocks ended little changed on Wednesday, with the Dow falling 6.66 points to 9333.79. The Nasdaq gained 11.48 points to 1782.13, and the S&P 500 rose 0.06 points to 996.79.