Futures point to gains driven by earnings

NEW YORK (Reuters) - Stock index futures looked poised on Thursday to extend its recent rally, even as a weak reading on the labor market underlined the headwinds facing the economy's recovery.

The S&P 500 index was on track for a third day of gains, after Wednesday's advance took it to its highest level since May. The rally has largely been driven by corporate earnings, and investors were cheered by IBM 's move to raise its full-year profit forecast late on Wednesday.

Futures were off session highs early on Thursday as jobless claims rose more than expected in the latest week, the latest in a string of data pointing to weakness.

"The labor market is clearly not recovering," said David Carter, chief investment officer at Lenox Wealth Advisors in New York. "We don't expect employment to recover strongly anytime soon."

Still, futures remained in positive territory after IBM's rosier full-year forecast, which bucked a recent trend of tech companies - such as Intel Corp and Qualcomm Inc - lowering their outlooks. Analysts feared the reduced views could have negative broader implications as the sector is considered a proxy for business spending. Shares of Dow component IBM rose 2.5 percent to $193 in premarket trading.

S&P 500 futures rose 7.2 points and were above fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures added 43 points and Nasdaq 100 futures rose 16.5 points.

The S&P is on track to notch a third straight day of gains on Thursday, having advanced 1.4 percent over the past two sessions.

Investors have been concerned that the debt crisis in Europe and signs of slowing growth worldwide would hurt corporate profits, but thus far, most companies have beaten the recently moderated expectations of analysts. With 10 percent of the S&P 500 having reported, according to the latest Thomson Reuters data, 73 percent have exceeded expectations.

"What IBM did, and what other companies are indicating, is that earnings will not be as poor as people felt was possible," said Rick Meckler, who helps oversee $2 billion as president of LibertyView Capital Management in New York.

"When you see earnings hold up in a weakening economy, that allows stocks to keep their momentum and suggests these companies could really advance when the economy picks up."

Morgan Stanley fell 3.6 percent to $13.49 before the bell as quarterly revenue declined due to a slowdown in trading and dealmaking volumes.

A pair of Dow components also reported. Travelers Cos Inc posted a profit that missed expectations while Verizon Communications Inc's revenue rose on strong subscriber additions, though the revenue was slightly below consensus estimates and shares fell 1.5 percent to $45.21.

Existing home sales and the Philadelphia Fed business activity survey are on tap for release at 10:00 a.m. (1400 GMT) Home sales are seen rising 1.1 percent, while the Philadelphia Fed survey's main index is expected to improve to minus 8.0 for July from minus 16.6 the month before.

Weak economic data recently has amplified hopes the Federal Reserve would step in with measures to boost growth. On Wednesday, Fed Chairman Ben Bernanke repeated in congressional testimony the Fed's pledge to act if the economy needed it. Later in the day, the Fed's anecdotal Beige Book survey showed the economy is still struggling.

Nokia Corp also reported results, coming in with a loss that was narrower than expected and ending the quarter with more cash than investors had expected. U.S.-listed shares of the company climbed 13 percent to $1.96 before the bell.

Wall Street rose on Wednesday, lifted by results from such bellwethers as Honeywell Inc , though shares of Bank of America Corp were sold off following results, which pressured financials.

(Editing by Bernadette Baum)

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