Updated from 4:06 p.m. EDT

Stocks closed with gains for the third straight day Thursday, gaining strength from some positive economic signals and overcoming early morning weakness. The Dow had its highest close in 11 months.

The Dow Jones Industrial Average gained 13.33 points, or 0.2%, to 9196.55, encountering strong resistance at 9215, the 11-month intraday high it hit last Friday. The Nasdaq gained 7.60 points, or 0.5%, at 1653.62, while the S&P 500 was up 1.03 points, or 0.1%, at 998.51.

The Dow entered Thursday's session up more than 200 points over the previous two days, in both cases adding the majority of gains in the final 30 minutes. Thursday was no exception, with the Dow turning losses into gains in the final hour of trading.

While the recent action has been choppy due to profit-taking, many experts think the rally is just taking a breather as markets build a base. "The gains are sentiment-driven, with investors betting this rally will be sustainable," said Jacques Vanderborght, fund manager at Petercam. "Cash is being reinvested, and even from a technical point of view, the market has broken out of any downward trend."

On the economic front, according to the Commerce Department, retail sales rose 0.1% in May following a revised 0.3% gain in April. The May increase was 0.1% excluding autos, and was 0.6% excluding autos and gasoline. Initial claims for unemployment benefits fell 17,000 to 430,000.

On Wednesday, the Federal Reserve's Beige Book survey found U.S. economic growth "subpar" since April. Investors interpreted the report as raising the likelihood of a 13th interest rate cut at the FOMC's June 24-25 meeting. "After the Beige Book, the sentiment did not worsen, despite weak figures. The market is saying a cut is more likely to come, of either 25 or 50 basis points," Vanderborght said.

Treasuries were higher, with the 10-year note closing up 13/32 and yielding 3.16%, nearing a half-century low. Crude oil prices were lower. The dollar was little changed against the yen and euro, despite Treasury Secretary John Snow's comments in support of a strong-dollar policy.

In corporate news, PeopleSoft's ( PSFT) board recommended against Oracle's ( ORCL) unsolicited takeover bid Thursday morning, telling investors that the deal would face antitrust scrutiny and approval wasn't assured. Also, given the hostile nature of Oracle's bid, the company said it would disrupt its "strong momentum at significant cost to PeopleSoft's customers."

Also, Moody's lowered the outlook on Oracle's credit rating to negative, citing the PeopleSoft offer. Also, Merrill Lynch reduced its estimates for PeopleSoft's license revenue on worries the potential merger could disrupt customer relations. Oracle, which reported better-than-expected earnings after the bell, gained 6 cents, or 0.5%, to $13.33, while PeopleSoft fell 25 cents, or 1.4%, to $17.37.

Fannie Mae ( FNM) and Freddie Mac ( FRE) were both downgraded to market perform from outperform by Wachovia on Thursday morning, which told investors that the fiasco over Freddie's accounting will increase regulatory intervention for government-sponsored entities. Fannie fell $2.63, or 3.8%, to $67.07, while Freddie fell $2.39, or 4.8%, to $47.35.

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