Wall Street rises on U.S. data, German vote

NEW YORK (Reuters) - Stocks rose on Thursday after U.S. economic data came in stronger than forecast and Germany's lower house approved new powers for the euro zone's crisis fund.

One of the reports hinted at strength in the U.S. economy's hardest hit sector, the battered jobs market. The U.S. Labor Department said initial applications for unemployment benefits fell to a five-month low last week.

In addition, the Commerce Department said gross domestic product grew at annual rate of 1.3 percent in the April-June quarter, up from the previously estimated 1.0 percent pace and helped by consumer spending and export growth.

Investors had worried about funding a series of bailouts for countries like Greece, but enough German lawmakers from the center-right coalition voted in favor to give Chancellor Angela Merkel the number she needed to pass crucial euro zone policy without opposition help.

"The news out of Germany helped as well -- that gave (the market) a lift to start and obviously getting good news on the U.S. front magnifies that," said Peter Jankovskis, co-chief investment officer at OakBrook Investments LLC in Lisle, Illinois.

"It's the claims number since people are -- rightfully so -- very focused on jobs growth."

Also supporting equities were statements from Federal Reserve Chairman Ben Bernanke on Wednesday that the central bank might need to ease monetary policy further if inflation or inflation expectations fall significantly.

The Dow Jones industrial average gained 209.08 points, or 1.90 percent, to 11,219.98. The Standard & Poor's 500 Index gained 20.46 points, or 1.78 percent, to 1,171.52. The Nasdaq Composite Index gained 42.52 points, or 1.71 percent, to 2,534.10.

The benchmark 500 index is expected to finish the year down for the first time in three years as an escalating European debt crisis and stalled U.S. economy lead strategists to slash forecasts in the latest Reuters poll.

Bank shares rose, with Citigroup Inc 3.3 percent higher to $26.78 and JPMorgan Chase & Co up 3.7 percent to $31.62. The KBW Bank index advanced 2.8 percent.

Market volatility is likely to remain high as traders react to European headlines and attempt to gauge the commitment of governments and institutions as they work to prevent a Greek default.

At 10 a.m. (1400 GMT), the National Association of Realtors issues pending home sales for August. Economists expect a 1.8 percent drop, compared with a 1.3 percent drop in the previous month.

Materials stocks rebounded after Wednesday's selloff in commodities over global demand worries. Freeport-McMoRan Copper & Gold Inc advanced 2 percent to $32.94 and Alcoa Inc gained 2.6 percent to $10.23. The S&P materials index climbed 1.7 percent.

(Reporting by Chuck Mikolajczak; editing by Kenneth Barry)