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.

Xerox ( XRX) said it is returning to the market with a $3.1 billion refinancing plan that would replace debt with new stock, bonds and a line of credit. Shares of the company rose 87 cents, or 8.1%, to $11.57.

HJ Heinz ( HNZ) announced fourth-quarter earnings that missed Wall Street estimates by a penny a share, while guiding fiscal 2004 toward the low end of current guidance. Elsewhere, Whirlpool ( WHR) said 2003 earnings would top current estimates. Heinz fell 58 cents, or 1.7%, to $33.82, while Whirlpool gained $1.80, or 2.9%, to $63.86.

In the biotech and pharmaceutical space, Cell Therapeutics ( CTIC) gained $1.76, or 14.5%, to $13.90, after announcing it has received FDA approval for its Trisenox injection. Ariad Pharmaceuticals ( ARIA) rose 29 cents, or 6.6%, to $4.67, after it said it will receive $1 million in licensing fees over the next 20 months.

Teva Pharmaceuticals ( TEVA) rose $3.34, or 6.5%, to $54.91 after SG Cowen told investors that President Bush plans to push for new FDA rules that would speed up the approval process for generic drugs. Elsewhere, UBS analysts lowered their recommendation on drugmaker MedImmune ( MEDI) to neutral from buy, saying the market already has priced in approval for one of its drugs. MedImmune fell $1.34, or 3.4%, to $38.05.

InterMune ( ITMN) fell $8.36, or 33.3%, to $16.74 after predicting a wide sales miss late Wednesday. The biotech cited weaker-than-expected sales of its immune system booster Actimmune.

Starwood ( HOT) and Hilton ( HLT) were downgraded to neutral from buy by Merrill Lynch, based on valuation concerns. Both stocks have gained more than 30% since March 11, compared with the S&P 500's 23% gain over the same span. Starwood fell 53 cents, or 1.7%, to $29.90.

The initial public offering of FormFactor ( FORM), a manufacturer of semiconductor testing tools, was priced at $14 by Morgan Stanley. On its first day of trading, shares rose $3.58, or 25.6%, to $17.58.

The Philadelphia Semiconductor Index will be in for a change on Monday, June 23, with STMicroelectronics ( STM) and Taiwan Semiconductor ( TSM) replacing Lattice Semiconductor ( LSCC) in the much-watched index. STM fell 87 cents, or 3.8% to $21.91, and Taiwan Semi rose 18 cents, or 1.8%, to $10.37, while Lattice fell 57 cents, or 6.5%, to $8.18. The Philly chipmakers fell 1.4%.

Elsewhere in the space, Novellus Systems ( NVLS) was downgraded at UBS to reduce from neutral on valuation concerns. Novellus fell $56, or 1.5%, to $36.75.

Overseas markets were higher, with London's FTSE 100 up 0.3% at 4161 and Germany's Xetra DAX closing up 1.3% at 3219. In Asia, Japan's Nikkei closed 0.3% higher at 8918, while Hong Kong's Hang Seng gained 0.8% to 9736.

On Wednesday, the Dow rose 1.4% to 9183.22, its first close above 9100 since July 1, 2002. The S&P 500 jumped 1.3% to 997.48, nearing the 1000 mark, while the Nasdaq climbed 1.1% to 1646.02.

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