Tech earnings lead Wall Street up, but data weighs

NEW YORK (Reuters) - Stocks rose for a third straight day on Thursday, led by technology stocks following a strong full-year outlook from IBM, and extending a rally that has taken the S&P to its highest level since May.

The tech-heavy Nasdaq surged but gains in other indexes were limited following a weak reading on the U.S. labor market which underlined the headwinds facing the economy's recovery.

IBM raised its full-year profit forecast late on Wednesday, bucking a recent trend of tech companies that cut their outlooks. Shares of the Dow component leapt 3.8 percent to $195.38, the best day for the stock since January.

"After seeing some weakness in the space, this shows that there can be dramatic moves both ways in the sector," said Richard Sichel, chief investment officer at Philadelphia Trust Co. "Industry leaders are leading again."

Positive sentiment was tempered by labor data, which showed jobless claims rose more than expected in the latest week, the most recent of a ream of reports pointing to weakness.

Separately, existing home sales unexpectedly fell in June while the Philadelphia Fed business survey also came in weaker than expected.

"We've had more disappointment than not when it comes to data over the past few months, but for the moment investors are looking instead at what companies have to say, which is more important," said Sichel, who helps oversee $1.6 billion in assets.

The Dow Jones industrial average <.DJI> was up 5.37 points, or 0.04 percent, at 12,914.07. The Standard & Poor's 500 Index <.SPX> was up 1.09 points, or 0.08 percent, at 1,373.87. The Nasdaq Composite Index <.IXIC> was up 15.32 points, or 0.52 percent, at 2,957.92.

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.

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

Among other Dow components, 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.

Travelers fell 0.8 percent to $63.47 while Verizon slumped 2.4 percent to $44.81.

Nokia Corp also reported results, coming in with a loss that was smaller than expected and ending the quarter with more cash than investors had expected. U.S.-listed shares of the company climbed 9.8 percent to $1.90.

(Editing by Bernadette Baum)