NEW YORK (TheStreet) -- Mediocre U.S. economic data and declines in Italian bond interest rates were enough to get investors back into the holiday spirit and resume last week's Santa Claus rally Thursday.

The Dow Jones Industrial Average gained 136 points, or 1.1%, to 12,287. Bank of America ( BAC), JPMorgan ( JPM), Hewlett-Packard ( HPQ) and Caterpillar ( CAT) leading the blue-chip index higher, and breadth was overwhelmingly positive with all 30 components on the rise.

The S&P 500 rose 13 points, or 1.1%, to 1,263, with financial and industrial shares showing strength, while the Nasdaq Composite climbed 24 points, or 0.9%, at 2,614.

Trading got off to a strong start after Italy's borrowing costs fell for a second day in a bond auction that raised 7 billion euros instead of the 8.5 billion the country had planned. Italy sold bonds due in 2022 with yields of 6.98%, down from 7.56% the country paid a month ago. Bonds due in 2014 were also sold at 5.62% yields, compared with the previous 7.89%. This comes after a successful bond sale Wednesday in which the country raised 9 billion euros at half the interest rate of a previous auction.

Later in the morning a slew of U.S. economic data that was less than bright sent stocks still higher. The number of Americans filing for first time unemployment benefits rose more than expected in the first increase in four weeks, according to a Labor Department report. Initial jobless claims rose by 15,000 to 381,000 on a seasonally adjusted basis in the week ended Dec. 24 from a revised 366,000 in the previous week. Economists had expected to see claims rise to 375,000 from the originally reported 364,000 the prior week, according to Thomson Reuters.

Still, the market took heart from falling longer-term trends. The four-week moving average for initial claims fell by nearly 6,000 to 375,000, its lowest level in more than three years.

"The unemployment claims data continue to signal that the pace of improvement in the labor market may be gaining momentum," said RDQ Economics in a research note. "For seven consecutive weeks, the four-week average of claims has been below the 400,000 mark (similar to the late February to mid-April period when this measure of the trend in claims held below 400,000 for eight straight weeks) and the average of claims is at its lowest level since June 2008."

Pending home sales rose by a more-than-expected 7.3% in November to the highest level since April 2010, according to a National Association of Realtors report. Economists were expecting sales to increase by 2%, according to Thomson Reuters.

The index, which measures the number of contracts signed to buy previously owned homes in the U.S., rose to a reading of 100.1 in November from 93.3 in October as homebuyers look to finalize purchases before the home buyer tax credit expires at the end of the year. Tuesday data on home prices painted a bleaker picture of the real estate market. U.S. home prices fell 1.2% October for a year-over-year decline of 3.4%, according to the S&P/Case-Shiller home price index.

Yet, the growth in pending home sales were enough to send homebuilders higher, as Masco ( MAS), PulteGroup ( PHM) and Lennar ( LEN) leading gains in the S&P 500.

A reading on Midwest manufacturing came in better than expected at 62.5, according to the Institute for Supply Management. Economists were expecting the Chicago Purchasing Managers Index (PMI) to drop to 61.0 in December from 62.6 in the prior month.

European stocks also benefited as Italian borrowing costs fell. Germany's DAX closed up 1.3% while London's FTSE climbed 1.1%. Japan's Nikkei Average settled 0.29% lower and Hong Kong's Hang Seng was down 0.65%.

"While good news on the economic front is certainly helpful heading into the new year, it may not provide traction necessary to combat the weak annual performance figures of equities in 2011 and the desire to close portfolios early ahead of this holiday weekend," Marc Pado, market strategist with Cantor Fitzgerald, wrote in a note. "Volume continues to trend at an excruciatingly anemic pace, which will leave the market vulnerable to any trading activity in these final few days."

The year-end rally faded Wednesday as the Dow shed 1.1% and the S&P 500 slipped back into the red for the year by the close.

"This is a feel-good rally," David White, president of David B. White Financial, said. "The market is reacting to news, even if it's only temporary news. It's more susceptible to global news now that it ever has been, sending it up and down like a yo-yo."

On Thursday, the dollar index lost 0.2%. The benchmark 10-year U.S. Treasury increased by 6/32, diluting the yield to 1.901%.

February oil futures settled 29 cents higher at $99.65. Earlier this week oil topped $101 a barrel amid worries about supply disruptions from Iran's threat to stop oil flow from the Gulf. In other commodities, February gold futures continued Wednesday's tumble, losing $23.20 to $1,540.90 an ounce to approach its lowest value since July.

In corporate news, Exar ( EXAR) lowered its financial outlook, citing the impact of weak economic conditions in Europe and Asia and continued inventory corrections. The Fremont, Calif.-based semiconductor company said it now sees revenue of $28 million to $30 million for its fiscal third quarter ending in December. The current average estimate of two analysts polled by Thomson Reuters is for break-even results from Exar in the quarter on revenue of $33.1 million. The stock fell 3.2% to $6.46.

Yahoo! ( YHOO) is again being discussed as a potental acquisition target. Reuters reported on Wednesday that China's Alibaba Group has hired U.S. lobbyist firm Duberstein Group in a sign that it could pursue a deal to acquire all of Yahoo! if efforts to buy back some of its assets fail. Yahoo! Shares, down around 5% for the year, rose 2.2% to $16.13.

Leggett & Platt ( LEG) said it expects to record a pre-tax charge of $36 million in its fiscal fourth quarter related to restructuring activities, including the closing of certain facilities. The Carthage, Mo.-based manufacturer said it expects the charge to reduce earnings by 16 cents a share.

Excluding items, its previous forecast for a profit of $1.15 to $1.20 a share for fiscal 2011 remains intact. Including the charge, the company anticipates earnings of 99 cents to $1.04 a share for the full year. The current average estimate of analysts polled by Thomson Reuters, which typically doesn't include one-time charges or gains, is for a profit of $1.19 a share for fiscal 2011. Shares of Leggett & Platt climbed 1.5% to $23.81.

News Corp. ( NWSA) advanced 2.4% to $17.87 Thursday after RBC upgraded the media company to outperform with a price target of $21, saying Rupert Murdoch's company has the best combination of "operating momentum, return of capital potential, company-specific catalysts and reasonable valuation" next year.

-- Written by Kaitlyn Kiernan in New York.

>To contact the writer of this article, click here: Kaitlyn Kiernan

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