Wall Street in rally mode

Stocks gained Thursday morning, extending the recent rally, thanks to better-than-expected earnings from Best Buy and ongoing bets that the economy is closer to stabilizing.

The Dow Jones industrial average (INDU) rose 72 points, or 0.9% almost two hours into the session. The S&P 500 (SPX) index rose 9 points, or 1.2%. The Nasdaq composite (COMP) rose 31 points, or 2%.

A better-than-expected new home sales report helped investors push stocks higher Tuesday at the end of a choppy session. It was the latest in a string of slightly better-than-anticipated news that has bolstered hopes that the economy could be closer to stabilizing.

Such signs - along with the latest initiatives from Treasury and the Fed - have propelled the S&P 500 by 20% in 2-1/2 weeks. Market pros are cautiously optimistic that the bear market saw a bottom on March 9, when the S&P 500 and Dow industrials both ended at more than 112-year lows.

Yet stocks supposedly hit bottom twice before in the current bear market, in both November and October. As such, investors are likely to remain wary of calling a floor until more time has passed.

Washington: Treasury Secretary Tim Geithner outlined a massive overhaul of the regulatory system in the wake of the financial meltdown of the last 18 months. Speaking before the House Financial Services Committee, he said the changes are needed to repair a system that has "proved too unstable and fragile."

Changes include having a single regulator oversee the biggest financial firms and requiring large hedge funds to register with the Securities and Exchange Commission. Any such changes need Congressional approval. (Full story)

Earlier in the week Geithner and Federal Reserve Chairman Ben Bernanke made the case for broader powers to regulate non-bank financial institutions like insurer AIG (AIG, Fortune 500).

On Monday, Treasury introduced its plan to purge bank balance sheets of up to $1 trillion in bad assets that are limiting lending and prolonging the recession.

Economy: The number of Americans filing new claims for unemployment rose to 652,000 from a revised 644,000 the prior week. Economists surveyed by Briefing.com thought sales would have risen to 650,000.

Continuing claims, a measure of people who have been receiving unemployment for a week or more, rose to an all-time high of 5.56 million.

Fourth-quarter GDP shrank at an annual rate of 6.3% in the fourth quarter of last year, versus an earlier reading of 6.2%. The decline was a 26-year low. Economists thought GDP would shrink by a 6.6% annual rate.

In other news, Best Buy (BBY, Fortune 500) reported a 23% drop in fiscal fourth-quarter earnings versus a year ago. Excluding charges, the retailer earned $1.61 per share, versus economists' forecasts for $1.40 per share. The company also forecast full-year earnings in a range of $2.50 to $2.90 per share versus estimates for a gain of $2.45 per share. Shares rallied 15% in the morning.
0:00 /02:39Life in the pits

Bonds: Treasury prices rose, lowering the yield on the benchmark 10-year note to 2.22% from 2.79% Wednesday. Treasury prices and yields move in opposite directions.

Lending rates were unchanged. The 3-month Libor rate held steady at 1.23%, where it stood Wednesday, while the overnight Libor rate held steady at 0.29%, according to Bloomberg.com. Libor is a bank-to-bank lending rate.

Other markets: In global trading, Asian markets ended higher and European markets weakened in afternoon trading.

In currency trading, the dollar gained against the euro and the yen.

U.S. light crude oil for May delivery rose 78 cents to $53.55 a barrel.

COMEX gold for May delivery rose $3.40 to $940.10 an ounce.