NEW YORK (AP) -- Stocks extended their advance Thursday after a better-than-expected reading on the nation's economy and a drop in jobless claims. The major indexes rose about 1%, including the Dow Jones industrial average, which gained nearly 200 points.
Stocks rose as oil prices, up in early trading, reversed course.
The Commerce Department said gross domestic product rose at an annual rate of 3.3% for the April-June period, as a weaker dollar helped boost U.S. exports. That exceeded the government's initial estimate of a 1.9% increase as well as economists' forecast of a 2.7% gain.
The growth marked the economy's best performance since the third quarter of last year, when GDP rose at a 4.8% pace.
Investors closely watch GDP to determine whether the economy is picking up momentum after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9% in the first quarter and actually shrank in the last three months of 2007.
Also Thursday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. The number of claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.
But economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with rising energy costs and tighter credit.
"We didn't get a whole lot of new information," said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, referring to the reports. He noted that trading remains light ahead of the long Labor Day weekend.
"Exaggerated reactions tend to happen when you have thin trading," he said.
In early afternoon trading, the Dow rose 188.25, or 1.64%, to 11,690.76 after rising more than 115 points over the past two sessions.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 12.80, or 1%, to 1,294.46, and the Nasdaq composite index rose 21.09, or 0.89%, to 2,403.55.
Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.79% from 3.77% late Wednesday. The dollar rose against other major currencies, while gold prices rose.
Investors are also watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course that could collide with oil and gas platforms. But strength in the dollar helped drive down the price of oil.
Light, sweet crude fell $2.47 to $115.68 on the New York Mercantile Exchange.
The decline in oil made energy stocks one of the few areas of weakness Thursday.
Devon Energy Corp. fell $4.83, or 4.5%, to $101.94, while Hess Corp. fell $2.40, or 2.2%, to $104.74.
In corporate news, Sears Holdings Corp. said its second-quarter profit fell 62% as weak consumer spending continues to hamper store sales. The retailer earned $65 million, or 50 cents per share, in the three-month period ended Aug. 2. That compares with $173 million, or $1.15 per share, in the year-ago period. The stock rose $3.90, or 4.5%, to $90.88.
Tiffany & Co. jumped $4.18, or 11%, to $43.79 after reporting that its second-quarter profit doubled as sales rose by double-digit percentages in Asia and Europe.
Zale Corp. forecast a fiscal 2009 profit above what Wall Street had expected, though it warned that same-store sales may decline. The specialty jeweler also reported a fiscal fourth-quarter loss as it continued reducing inventory levels. Zale rose $4, or 17%, to $27.15.
Investors have been looking to retailers' results for information not only about the companies, but about consumers' ability to spend. Several upbeat reports Wednesday from retailers helped buoy Wall Street's confidence in the economy.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 459.2 million shares.
The Russell 2000 index of smaller companies rose 8.13, or 1.11%, to 741.08.
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