Updated from 4:05 p.m. EST

Stocks ended on a high note Thursday, as a better-than-expected manufacturing report and encouraging unemployment figures outweighed more disappointing economic data.

The Dow Jones Industrial Average closed up 65 points, or 0.8%, at 8713, while the Nasdaq rose 16 points, or 1.1%, to 1551. The S&P 500 gained 7 points, or 0.8%, to 947.

"There's a lot of cash on the sidelines being deployed," said Jay Suskind, head of institutional equity trading at Ryan Beck & Co. "I think people are really fearful of missing a major move up."

Suskind said there is also a lot of optimism about an economic recovery in the second half of the year, although he admitted that recent data have been miserable. "Fundamentally, this market is fully priced, but technically, it still reads well," he said.

Larry Wachtel, a market analyst at Prudential Securities, noted that NYSE gainers have outpaced losers in 33 of the past 46 sessions, and that in early May, more than 90% of the 1,500 largest, most actively traded stocks on the three major exchanges rose above their 50-day moving average. That hasn't happened since after the last Gulf war in February 1991. Earlier this year, he said, fewer than 10% of stocks were above their 50-day moving average.

While most of the economic data were negative Thursday, bulls chose to key in on the latest unemployment benefit claims, which came in at 417,000, down 13,000 from the previous week and lower than the Wall Street consensus of 430,000. The four-week moving average, which smoothes out weekly fluctuations, declined 7,500 to 439,750.

Optimists were also happy that manufacturing conditions in New York seem to be improving, at least according to the latest survey from the New York Federal Reserve. The Fed's Empire State index rose to a positive 10.6 in May from a negative 20.2 in the prior month. Expectations were for a negative reading of 7.8.

Still, the Philly Fed Survey showed a drop in manufacturing activity in May, with the monthly index coming in at negative 4.8. That was an improvement from last month's reading of negative 8.8 but slightly worse than economists' expectations for a negative reading of 4.0.

Meanwhile, the producer price index dropped 1.9% in April, the biggest drop in more than half a century and worse than economists' estimates for a decline of 0.7%. The core PPI, which excludes food and energy, fell 0.9% -- the biggest decline in 10 years. Last week, the Federal Reserve hinted that it was increasingly concerned about deflation.

"These numbers are generally pretty good profit indicators," said Merrill Lynch economist David Rosenberg. "We think this fits in with Rich Bernstein's view that some of the forward profit indicators are not telling us that we're going to get a renewed acceleration."

In other economic news, industrial production fell 0.5% in April and capacity utilization rate dropped to 74.4%, its lowest level since June 1983. Separately, business inventories rose 0.4% in March, pushing the inventory to sales index down to 1.38.

The yield on the 10-year Treasury note, which dropped to levels not seen in over 40 years on Wednesday, rose to 3.53% Thursday. The dollar was stronger against the euro and yen.

A batch of earnings reports also gave some investors reason to cheer. Computer Associates ( CA) reported a narrower loss on higher revenue, while Intuit ( INTU) said earnings doubled to $1.40 a share. Analog Devices ( ADI) said its net income jumped fourfold in the latest quarter. Computer Associates rose 11% to $20.26; Intuit added 7% to $41.81 and Analog gained 3.6% to $35.24.

Still, there were also a number of disappointing results. Target ( TGT), for example, announced first-quarter earnings that missed Wall Street estimates by a penny, on $10.32 billion in revenue, slightly lower than the $10.38 billion expected by analysts. Brocade ( BRCD) reported lower sales and a $146 million loss. Target fell 4% to $34.46, and Brocade skidded 14% to $5.57.

Intel's ( INTC) Chief Executive Craig Barrett said he remains cautious on the near-term business outlook but is more optimistic over the long term. While his comments did add some downward pressure earlier, they weren't enough to send stocks into negative turf. Intel was up 1.7% at $20.

Shares of Dell ( DELL) fell 0.2% to $32.18 ahead of its results. The firm said after the bell that earnings per share rose to 23 cents in its latest quarter compared to 17 cents last year, as it stole market share away from Hewlett-Packard ( HPQ).

Kohl's ( KSS) slid 1% at $53.02 before reporting a 32 cent profit in the first quarter, compared with 31 cents last year. The results were in line with analysts' estimates.

In other news, Panera Bread ( PNRA) said it earned $7.3 million, or 24 cents a share, in the latest quarter, up from $5.2 million, or 17 cents a share, a year earlier. The company said expansion helped boost results. Shares rose 6% to $34.19.

Auto parts supplier Pep Boys ( PBY) said it earned 17 cents a share in the first quarter, about 4 cents below the analyst consensus on a 5.3% rise in quarterly revenue. Shares fell 5.6% to $9.16.

Clothes retailer American Eagle Outfitters ( AEOS) said it earned $6.4 million, or 9 cents a share, in the first quarter, down from $12.7 million, or 17 cents a sharer, last year. That's about a penny better than expected. Same-store sales fell 6.5%. Shares rose 3.6% to $15.91.

Providian ( PVN) was upgraded to overweight from underweight by Lehman Brothers, while Merrill Lynch cut the stock to neutral from buy, telling investors the stock has run up enough. Shares fell 5% to $8.45.

Overseas markets were mostly higher, with the FTSE 100 up 1% at 4011 and Germany's Xetra DAX up 2% to 2989. In Asia, Japan's Nikkei ended down 1.5% at 8123, while Hong Kong's Hang Seng added 0.3% to 9126.

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