Stocks snap five-day retreat as Spain pledges deficit cuts

A large drop in weekly unemployment claims and positive news from Europe on Thursday helped stock prices snap out of a recent slide.

The Dow Jones Industrial Average gained 72.46 points to 13.485.97. The Nasdaq Composite Index rose 42.90 points to 3,136.60, and the S&P 500 Stock Index added 13.83 points to 1,447.15.

The Labor Department reported initial claims for jobless benefits fell by 26,000 in the week ending Sept. 22 to 359,000, the lowest level since late July. The department also said it had underestimated job growth in the past year by about 386,000.

The markets also reacted to news the government in Spain had proposed a 2013 budget that included significant budget cuts.

Commodity prices rose on the news from Europe. Gold gained $26.90 to $1,780.50 an ounce. Oil rebounded from its recent selloff to close at $91.85 a barrel, up $1.87.

General Electric Co. (NYSE: GE), the maker of jet engines and diesel locomotives, climbed 2.9 percent after raising its forecast for profit growth at its industrial units. Goodyear Tire & Rubber Co. (NYSE: GT), the largest U.S. tiremaker, rallied 3.9 percent as Goldman Sachs Group Inc. (NYSE: GS) advised buying the shares.

“People are still quite sensitive to news out of Europe and macro developments in general,” said John Carey, who helps oversee about $220 billion at Pioneer Investments in Boston. “Yes, people are encouraged by Spain’s austerity package. On the other hand, one does wonder what cuts will mean for growth. There’s also been speculation of Chinese stimulus.”

Stocks joined a global rally as Spanish Prime Minister Mariano Rajoy’s nine-month-old government announced its fifth austerity package in what may be a move to head off tougher conditions demanded as part of a potential European bailout. Shanghai Securities News said there was speculation the government would announce market-boosting measures.

If history is any guide, October may be another month of gains for stocks. Over the last 20 years, the Dow has risen an average 1.8 percent in October, with positive returns 70 percent of the time, according to data compiled by Bespoke Investment Group. October has been the third best month for the 30-stock gauge behind November and April, the data shows.

Nine of 10 groups in the S&P 500 rose Thursday as technology, energy and raw material shares had the biggest gains. The Morgan Stanley Cyclical Index of companies most tied to the economy advanced 1 percent. Commodity producers joined a 1.3 percent rally in the S&P GSCI gauge of raw materials amid speculation that stimulus measures will spur demand from China. Alpha Natural Resources Inc. (NYSE: ANR) increased 2.4 percent to $6.75. Monsanto Co. (NYSE: MON) advanced 2.1 percent to $91.36.

“The possibility of more Chinese stimulus is real,” said Peter Jankovskis, who helps manage more than $3 billion at Oakbrook Investments in Lisle, Ill. “That does provide some hope to the market.”

Discover Financial Services (NYSE: DFS) added 7.3 percent to $39.71. The credit card lender that struck a partnership with eBay Inc.’s (Nasdaq: EBAY) PayPal unit posted a fiscal third-quarter profit that beat Wall Street estimates as fewer loans soured.

The KBW Bank Index of 24 stocks added 1.1 percent. Bank of America Corp. (NYSE: BAC) climbed 1.8 percent to $8.97. JPMorgan Chase & Co. (NYSE: JPM) increased 1.1 percent to $40.68.