Italian bond yields, which helped break a five-day rally with a sharp selloff in the last session, eased Thursday after a debt auction. But the yield on 10-year bonds hovered near 7 percent, a level markets see as a danger zone for Italian government finances.
The Dow Jones industrial average <.DJI> gained 101.83 points, or 0.84 percent, to 12,253.24. The Standard & Poor's 500 Index <.SPX> rose 9.93 points, or 0.79 percent, to 1,259.57. The Nasdaq Composite Index <.IXIC> added 17.00 points, or 0.66 percent, to 2,606.98.
Banks were the biggest gainers along with commodity-related sectors that sold off hard on Wednesday. The S&P financial index <.GSPF> rose 1.4 percent, while the capital goods sector <.GSPIC> was up 1 percent.
Concerns over Europe's sovereign debt crisis resurfaced Wednesday, sparking a 1 percent decline in major indexes. The S&P 500's slim gains for the year were erased and the index pulled back below its 200-day moving average.
The 200-day moving average has been a critical level for the S&P 500 this year as investors look for a significant break above that level before committing capital. The measure is often used to gauge the market's longer-term strength.
On the down side, initial claims for jobless benefits rose more than expected, giving a mixed labor picture, but investors said the trend was still lower.
Recent economic data, including reports on housing, have been largely positive, contributing to gains over the past month and the view that economic growth is picking up steam.
"We have seen a pretty encouraging trend in the U.S. economic data over the last two months," said Peter Jankovskis, co-chief investment officer at OakBrook Investments in Lisle, Illinois. "If that trend continues that will provide good support and perhaps some upward momentum."
The next big test for markets in terms of U.S. economic data will be the December payrolls report next week.
For the year, the S&P is up 0.1 percent while the Nasdaq is down 1.7 percent and the Dow is up 5.8 percent.
Gains on the Nasdaq were limited by Amazon.com Inc , which fell 0.3 percent to $173.40. Goldman Sachs said the online retailer's sales growth in the current holiday quarter could miss expectations.
Diamond Foods Inc shares rose 7.8 percent to $31.69 after CNBC reported rumors that high-profile investor David Einhorn may have invested in the company.
Mosaic Co was off 1.1 percent to $49.73 after the fertilizer producer said it will cut production of phosphate, a key nutrient used for crop production, because prices have fallen to unsustainable levels.
Standard & Poor's placed Sears Holdings Corp's credit rating on review for a possible downgrade. It said plans to close at least 100 stores may not do much to improve its performance. The stock fell 1.5 percent to $32.80 and has lost one-third of its value over the last three days.
(Reporting By Edward Krudy; editing by Jeffrey Benkoe)