By Kate Gibson

NEW YORK (MarketWatch) -- U.S. stocks recouped much of their losses by the close Thursday, after a drop in jobless claims led investors to bet a double-dip recession might be avoided.

Economic concerns, however, continued to weigh after an index of conditions in the Philadelphia region disappointed.

"The jobless claims were better but the Philly Fed was much worse, but we've come to expect that the data is going to be mixed," said Noman Ali, senior portfolio manager at MFC Global Investment Management.

"We've moved up 8% from the bottom in a space of less than two months, so some correction is due," he added.

The Dow Jones Industrial Average (DJI) gained 22.1 points, or 0.2%, to end at 10,594.83, with 19 of its 30 components rising, led by a 1.8% rise in shares of Hewlett-Packard (HPQ) .

The Standard & Poor's 500 Index (SPX) fell 0.41 point to 1,124.66, weighed by the energy, utilities and financial sectors.

The Nasdaq Composite (RIXF) gained 1.93 points, or 0.1%, to 2,303.25.

Two stocks rose for every three on the decline on the New York Stock Exchange, where just 906 million shares traded.

"Volume has been low, conviction has been low, there is still a lot of uncertainty in the market, so it's hard to take a stance one way or another," said Nate Peterson, senior derivatives analyst at Charles Schwab.

Shares of FedEx Corp. (FDX) fell 3.7% after the shipping giant reported its first-quarter profit more than doubled, but its outlook for second-quarter and full 2010 earnings disappointed Wall Street.

"The economy has weakened, so companies will be cautious in terms of giving guidance, so that's going to be an overhang in terms of stocks," said Ali.

That said, Ali has a bullish take on the equities market, at least in looking at the next six to 12 months, given the relative cheapness of equities, if one contrasts earnings yields on the S&P 500 versus corporate bond yields.

There are many stable companies with stable cash flows and dividend yields of 7% to 8%, yet at those same companies the corporate bonds yield 3% to 4%.

The scenario has helped drive recent merger activity, said Ali, pointing to Intel Corp.'s (INTC) recent deal for McAfee Inc. (MFE), Sanofi-Aventis SA's (SNY) attempt to purchase biotech firm Genzyme Corp. (GENZ) and BHP Billiton Ltd.'s proposed takeover of fertilizer giant Potash Corporation of Saskatchewan Inc. (POT) .

Basically companies are saying, "I could borrow at 3% on the bond market and pick up these companies yielding 7% to 8%," said Ali.

"That is going to be a catalyst for equities to improve," Ali said.

The Federal Reserve Bank of Philadelphia reported manufacturing in the region contracted this month, defying expectations of a rise.

Conversely, the government said new claims for jobless benefits fell last week, with the more positive trend also unexpected.

 
 
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