Corrected: Wall Street rises as economic picture brightens

By Edward Krudy

NEW YORK (Reuters) - U.S. stocks rose on Thursday after a sharp fall in weekly claims for jobless benefits and early signs of strength in September business activity lifted confidence in the economy.

The S&P 500 <.SPX> has gained more than 9 percent so far this month, helped by signs of stabilization in the economy and hopes the Federal Reserve will take extra steps to spur the recovery. Thursday's convergence of stronger data provided another boost for equities.

The biggest gains came in sectors that tend to do better in a stronger economy, such industrials, consumer discretionary, and energy. Boeing Co led the Dow industrials higher, gaining 1.9 percent to $67.24.

"We could be seeing the last vestiges of the idea that too much bad news was built into the market," said John Brady, senior vice president at MF Global in Chicago. "We could go from being overly pessimistic to overly optimistic."

New U.S. claims for unemployment benefits fell by 16,000 last week to 453,000, the Labor Department said, a steeper fall than had been anticipated and a sign the labor market may be strengthening modestly.

That was backed up by stronger readings for regional business activity indexes in New York City and the U.S. Midwest, seen as early indicators before national surveys on Friday and later next week.

The U.S. Commerce Dept also revised higher its final estimate of economic growth in the second quarter.

The Dow Jones industrial average <.DJI> rose 70.99 points, or 0.66 percent, at 10,906.27. The Standard & Poor's 500 Index added 8.26 points, or 0.72 percent, at 1,152.99. The Nasdaq Composite Index <.IXIC> gained 12.74 points, or 0.54 percent, at 2,389.30.

Investors' attention will now turn to Federal Reserve Chairman Ben Bernanke, who will testify before a Senate Banking Committee hearing on implementing the recently passed financial regulation act.

Indexes could be lifted further as fund managers chase high performing stocks and sell losing shares to dress up portfolios by the quarter's end. The S&P 500 is headed for a quarterly gain of 11.75 percent as the three-month period ends on Thursday.

American International Group Inc shares jumped 6.1 percent to $39.70 after the company and the U.S. government agreed on a plan that would see the insurer repay taxpayers fully for bailing it out at the height of the financial crisis.

Prudential Financial Inc fell 2.7 percent to $55.01 after the company agreed to buy two Japanese life insurance units from AIG for $4.2 billion.

Mattel Inc shares fell 0.2 percent to $22.51 as the U.S. Consumer Product Safety Commission said the company's Fisher-Price unit would recall about 10 million toys because of injury hazards to children.

(Additional reporting by Ryan Vlastelica and Rodrigo Campos; Editing by Padraic Cassidy)

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