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The technology sector showed strength, with Nvidia Corp (NVDA.O) up 9.8 percent to $25.68 a day after posting a bullish revenue forecast on accelerating sales of its processors.

An index of semiconductors' shares .SOX gained 1.4 percent and is now up 21.3 percent since early December, around the time when the most recent leg of the run-up started.

The S&P energy sector .GSPE gained 0.8 percent. U.S. crude futures jumped 1.7 percent as unrest in the Middle East kept focus on supply, boosting shares of energy companies.

Futures had dipped early in the session after data showed both a rise in consumer prices and new claims for unemployment benefits, but the dip didn't last long after the open.

"People have been focusing on the positives like the outlook for corporations and a good earnings season," said Brian Lazorishak, a money manager at Chase Investment Counsel in Charlottesville, Virginia.

Stocks continued to ignore Iran's intention to send two navy vessels through the Suez Canal to the Mediterranean in a move Israel has called a "provocation".

"Geopolitical issues have been pushed aside, maybe prematurely," Lazorishak said.

The S&P 500 has doubled its value in less than two years, the quickest 100 percent gain since the Great Depression. However, volume has been light in the most recent leg of the rally, with just 6.7 billion shares changing hands Thursday on the New York Stock Exchange, NYSE Amex and Nasdaq combined -- the second-lowest so far in 2011.

The Dow Jones industrial average .DJI gained 29.97 points, or 0.24 percent, to 12,318.14. The Standard & Poor's 500 Index .SPX rose 4.11 points, or 0.31 percent, to 1,340.43. The Nasdaq Composite Index .IXIC added 6.02 points, or 0.21 percent, to 2,831.58.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 5 to 3, while on the Nasdaq, about three stocks rose for every two that fell.

The S&P 500 faces little technical resistance before the 1,361 area that marks the 76.4 percent retracement of its slide from the 2007 highs to the low hit on March 6, 2009.

A Fibonacci projection of the latest leg of the rally also draws a target near 1,361, suggesting the S&P could face strong resistance at that level.

Dr Pepper Snapple Group Inc (DPS.N) posted quarterly profit that beat estimates and gave an upbeat forecast and its shares jumped 5.7 percent to $36.20.

Its competitor Coca Cola Co (KO.N) was the top gainer in the Dow industrials, up 1.8 percent to $64.55. Coke also announced an increase in its dividend.

The technology sector showed strength, with Nvidia Corp (NVDA.O) up 9.8 percent to $25.68 a day after posting a bullish revenue forecast on accelerating sales of its processors.

An index of semiconductors' shares .SOX gained 1.4 percent and is now up 21.3 percent since early December, around the time when the most recent leg of the run-up started.

The S&P energy sector .GSPE gained 0.8 percent. U.S. crude futures jumped 1.7 percent as unrest in the Middle East kept focus on supply, boosting shares of energy companies.

Futures had dipped early in the session after data showed both a rise in consumer prices and new claims for unemployment benefits, but the dip didn't last long after the open.

"People have been focusing on the positives like the outlook for corporations and a good earnings season," said Brian Lazorishak, a money manager at Chase Investment Counsel in Charlottesville, Virginia.

Stocks continued to ignore Iran's intention to send two navy vessels through the Suez Canal to the Mediterranean in a move Israel has called a "provocation".

"Geopolitical issues have been pushed aside, maybe prematurely," Lazorishak said.

The S&P 500 has doubled its value in less than two years, the quickest 100 percent gain since the Great Depression. However, volume has been light in the most recent leg of the rally, with just 6.7 billion shares changing hands Thursday on the New York Stock Exchange, NYSE Amex and Nasdaq combined -- the second-lowest so far in 2011.

The Dow Jones industrial average .DJI gained 29.97 points, or 0.24 percent, to 12,318.14. The Standard & Poor's 500 Index .SPX rose 4.11 points, or 0.31 percent, to 1,340.43. The Nasdaq Composite Index .IXIC added 6.02 points, or 0.21 percent, to 2,831.58.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of about 5 to 3, while on the Nasdaq, about three stocks rose for every two that fell.

The S&P 500 faces little technical resistance before the 1,361 area that marks the 76.4 percent retracement of its slide from the 2007 highs to the low hit on March 6, 2009.

A Fibonacci projection of the latest leg of the rally also draws a target near 1,361, suggesting the S&P could face strong resistance at that level.

Dr Pepper Snapple Group Inc (DPS.N) posted quarterly profit that beat estimates and gave an upbeat forecast and its shares jumped 5.7 percent to $36.20.

Its competitor Coca Cola Co (KO.N) was the top gainer in the Dow industrials, up 1.8 percent to $64.55. Coke also announced an increase in its dividend.

The chiefs of major agencies that are writing hundreds of rules mandated by Dodd-Frank told the panel at a hearing that they need more money to carry out the law, which was approved following the 2007-2009 financial crisis.

Regulators also gave some glimpses into their thinking on implementation of Dodd-Frank rules involving debit card fees and subjecting large financial firms to stricter oversight, as well as on dealing with the mortgage servicing scandal.

For investors and Wall Street, the Senate hearing represented another act in a long-running drama that analysts expect will lead to few, if any, changes in the Dodd-Frank reforms due to political gridlock ahead of the 2012 elections.

"Republicans will argue in favor of extending implementation of (Dodd-Frank) ... but these are timing issues and won't affect the substance of the rules," said Brian Gardner, analyst at investment firm of Keefe Bruyette & Woods.

From derivatives oversight to bank capitalization, the financial regulation issues being debated on Capitol Hill will also feature in a Paris meeting on Friday and Saturday of Group of 20 finance ministers and central bank chiefs.

With international coordination of post-crisis reforms still a serious challenge facing U.S. and EU policy-makers, Senator Richard Shelby urged a Dodd-Frank slow-down.

"Regulators must not compound the mistakes of Dodd-Frank by promulgating uninformed rules," said Shelby, the committee's top Republican member, at the hearing.

Republicans and the financial industry could win delays in implementation, said Joseph Engelhard, analyst at advisory firm Capital Alpha Partners. "More time will be needed," he said.

Democratic Senator Tim Johnson, replacing Christopher Dodd, presided over his first hearing as committee chairman.

Johnson pledged to defend "the letter and spirit" of the sprawling Dodd-Frank statute, though he cautioned that its global impact must be handled "with great care to avoid unintended consequences that could impair economic growth."

HEAVY LOAD FOR REGULATORS

Dodd-Frank was written and passed by congressional Democrats and signed into law by President Barack Obama over the fierce opposition of Republicans and Wall Street.

With 2012 elections looming and campaign donations from the financial industry rolling in, Republicans are pressing to trim back Dodd-Frank at the funding and administrative levels, with legislative changes seen as unlikely to gain much traction.

House Republicans -- pursuing dual goals of combating the federal deficit and undermining reforms that they continue to oppose -- want to restrain financial regulators' budgets.

The chiefs of major agencies that are writing hundreds of rules mandated by Dodd-Frank told the panel at a hearing that they need more money to carry out the law, which was approved following the 2007-2009 financial crisis.

Regulators also gave some glimpses into their thinking on implementation of Dodd-Frank rules involving debit card fees and subjecting large financial firms to stricter oversight, as well as on dealing with the mortgage servicing scandal.

For investors and Wall Street, the Senate hearing represented another act in a long-running drama that analysts expect will lead to few, if any, changes in the Dodd-Frank reforms due to political gridlock ahead of the 2012 elections.

"Republicans will argue in favor of extending implementation of (Dodd-Frank) ... but these are timing issues and won't affect the substance of the rules," said Brian Gardner, analyst at investment firm of Keefe Bruyette & Woods.

From derivatives oversight to bank capitalization, the financial regulation issues being debated on Capitol Hill will also feature in a Paris meeting on Friday and Saturday of Group of 20 finance ministers and central bank chiefs.

With international coordination of post-crisis reforms still a serious challenge facing U.S. and EU policy-makers, Senator Richard Shelby urged a Dodd-Frank slow-down.

"Regulators must not compound the mistakes of Dodd-Frank by promulgating uninformed rules," said Shelby, the committee's top Republican member, at the hearing.

Republicans and the financial industry could win delays in implementation, said Joseph Engelhard, analyst at advisory firm Capital Alpha Partners. "More time will be needed," he said.

Democratic Senator Tim Johnson, replacing Christopher Dodd, presided over his first hearing as committee chairman.

Johnson pledged to defend "the letter and spirit" of the sprawling Dodd-Frank statute, though he cautioned that its global impact must be handled "with great care to avoid unintended consequences that could impair economic growth."

HEAVY LOAD FOR REGULATORS

Dodd-Frank was written and passed by congressional Democrats and signed into law by President Barack Obama over the fierce opposition of Republicans and Wall Street.

With 2012 elections looming and campaign donations from the financial industry rolling in, Republicans are pressing to trim back Dodd-Frank at the funding and administrative levels, with legislative changes seen as unlikely to gain much traction.

House Republicans -- pursuing dual goals of combating the federal deficit and undermining reforms that they continue to oppose -- want to restrain financial regulators' budgets.

The technology sector showed strength, with Nvidia Corp (NVDA.O) up 9.4 percent to $25.58 a day after a bullish revenue forecast.

The S&P 500 hit a 32-month high a day after doubling its value in less than two years, the steepest 100 percent gain since the Great Depression.

U.S. crude futures jumped as civilian unrest in some oil-producing regions kept focus on supply, boosting shares of energy companies. The S&P energy sector .GSPE gained 0.9 percent.

Stocks continued to overlook Iran's intentions to send two navy vessels through the Suez Canal in a move that Israel has called a "provocation" and that is putting Egypt's new military rulers in an unwelcome diplomatic spotlight.

"Geopolitical issues have been pushed aside, maybe prematurely," said Brian Lazorishak, a money manager at Chase Investment Counsel in Charlottesville, Virginia.

"People have been focusing on the positives like the outlook for corporations and a good earnings season," he said.

Lazorishak added that the uptick in stocks was related more to a lack of sellers than to enthusiastic buying. Dwindling volume could be a reflection of that.

Average daily volume on the New York Stock Exchange, NYSE Amex and Nasdaq has been 7.5 billion shares in February, sharply below the 8.5 billion shares traded daily on average over the same month last year.

The Dow Jones industrial average .DJI added 29.14 points, or 0.24 percent, at 12,317.31. The Standard & Poor's 500 Index .SPX gained 3.67 points, or 0.27 percent, at 1,339.99. The Nasdaq Composite Index .IXIC rose 5.52 points, or 0.20 percent, at 2,831.08.

Dr Pepper Snapple Group Inc (DPS.N) posted quarterly profit that beat estimates and gave an upbeat forecast and its shares jumped 5.6 percent to $36.18.

Its competitor Coca Cola Co (KO.N) was the top gainer in the Dow industrials, up 1.7 percent to $64.48. Coke also announced an increase in its dividend.

Data storage equipment maker NetApp Inc (NTAP.O) forecast weaker-than-expected profit, blaming a components shortage. Its shares fell 7.3 percent to $54.29.

Data showed U.S. core consumer prices rose at the quickest pace in 15 months in January but economists said the turnaround in prices was unlikely to derail the Federal Reserve's plan to continue pumping money into the economy.

That excess liquidity has been one of the main drivers of the stocks rally in the past months.

A separate report showed factory activity in the U.S. Mid-Atlantic region rose in February to its highest since January 2004, with an employment subindex reaching its highest point since April 1973.

(Editing by James Dalgleish)

The chiefs of major agencies that are writing hundreds of rules mandated by Dodd-Frank told the panel at a hearing that they need more money to carry out the law, which was approved following the 2007-2009 financial crisis.

Regulators also gave some glimpses into their thinking on implementation of Dodd-Frank rules involving debit card fees and subjecting large financial firms to stricter oversight, as well as on dealing with the mortgage servicing scandal.

For investors and Wall Street, the Senate hearing represented another act in a long-running drama that analysts expect will lead to few, if any, changes in the Dodd-Frank reforms due to political gridlock ahead of the 2012 elections.

"Republicans will argue in favor of extending implementation of (Dodd-Frank) ... but these are timing issues and won't affect the substance of the rules," said Brian Gardner, analyst at investment firm of Keefe Bruyette & Woods.

From derivatives oversight to bank capitalization, the financial regulation issues being debated on Capitol Hill will also feature in a Paris meeting on Friday and Saturday of Group of 20 finance ministers and central bank chiefs.

With international coordination of post-crisis reforms still a serious challenge facing U.S. and EU policy-makers, Senator Richard Shelby urged a Dodd-Frank slow-down.

"Regulators must not compound the mistakes of Dodd-Frank by promulgating uninformed rules," said Shelby, the committee's top Republican member, at the hearing.

Republicans and the financial industry could win delays in implementation, said Joseph Engelhard, analyst at advisory firm Capital Alpha Partners. "More time will be needed," he said.

Democratic Senator Tim Johnson, replacing Christopher Dodd, presided over his first hearing as committee chairman.

Johnson pledged to defend "the letter and spirit" of the sprawling Dodd-Frank statute, though he cautioned that its global impact must be handled "with great care to avoid unintended consequences that could impair economic growth."

HEAVY LOAD FOR REGULATORS

Dodd-Frank was written and passed by congressional Democrats and signed into law by President Barack Obama over the fierce opposition of Republicans and Wall Street.

With 2012 elections looming and campaign donations from the financial industry rolling in, Republicans are pressing to trim back Dodd-Frank at the funding and administrative levels, with legislative changes seen as unlikely to gain much traction.

House Republicans -- pursuing dual goals of combating the federal deficit and undermining reforms that they continue to oppose -- want to restrain financial regulators' budgets.

The technology sector showed strength, with Nvidia Corp (NVDA.O) up 6.7 percent to $24.96 a day after a bullish revenue forecast.

Also helping sentiment, an index of Mid-Atlantic business activity index rose in February to its highest level since January 2004.

In contrast, new U.S. claims for unemployment benefits were up last week, and U.S. core consumer prices advanced at their quickest pace in more than a year in January.

Early session losses turned to gains as investors saw the price weakness as an opportunity to buy into a market that has been rallying since the start of September, underscoring that bullish sentiment remains strong.

"We've run up incredibly over the last six months, and many many onlookers are looking for a pullback, and it just refuses to come," said Andrew Wilkinson, senior market analyst at Interactive Brokers Group in Greenwich, Connecticut.

"In the options market, premiums have declined, an indication ... the threats to a rising market are relatively small at this point."

On Wednesday, the S&P 500 doubled from its bear market low two years ago, boosted by earnings and merger and acquisition announcements. The index has risen more than 27 percent since the end of August.

The Dow Jones industrial average .DJI was up 9.69 points, or 0.08 percent, at 12,297.86. The Standard & Poor's 500 Index .SPX put on 1.46 points, or 0.11 percent, at 1,337.78. The Nasdaq Composite Index .IXIC added 4.39 points, or 0.16 percent, at 2,829.95.

The Dow and S&P 500 have been trading near 2-1/2-year highs.

Energy shares were among the top performers, following gains in oil prices. Shares of Chevron Corp (CVX.N) were up 0.3 percent at $96.95.

Helping to boost oil prices was a report that two Iranian warships were sailing toward the strategic Suez Canal. The news weighed on stocks earlier, with civil unrest in the Middle East increasing.

Data storage equipment maker NetApp Inc (NTAP.O) forecast weaker-than-expected profit, blaming a components shortage. Its shares fell 6.3 percent to $54.87.

(Reporting by Caroline Valetkevitch; editing by Jeffrey Benkoe)

The chiefs of the major agencies that are writing hundreds of new rules mandated by Dodd-Frank, told a committee hearing that they need more money to carry out the law approved last year in the wake of the 2007-2009 financial crisis.

The U.S. Securities and Exchange Commission, for instance, is hampered by a flat budget, said SEC Chairman Mary Schapiro. "We have delayed very significant technology projects that would help bring the SEC's technology up," she said.

Commodity Futures Trading Commission Chairman Gary Gensler said he recognizes the need for belt-tightening to fight the federal deficit. "It's a little bit daunting to ask for more money for this agency at this time, but I really do think this a good investment for the American public," he said.

For banks and Wall Street, the Senate hearing represented another act in a long-running drama that analysts expect will lead to few, if any, changes in the Dodd-Frank reforms due to political gridlock ahead of the 2012 elections.

"Republicans will argue in favor of extending implementation of (Dodd-Frank) ... but these are timing issues and won't affect the substance of the rules," said Brian Gardner, analyst at investment firm of Keefe Bruyette & Woods.

Democratic Senator Tim Johnson, replacing Christopher Dodd, gaveled open his first hearing as banking committee chairman amid calls by Republicans for a Dodd-Frank slow-down.

Johnson said he will defend "the letter and spirit of the new law" and cautioned that its global impact must be handled "with great care to avoid unintended consequences that could impair economic growth or send good paying jobs overseas."

From derivatives oversight to bank capitalization, the financial regulation issues being debated on Capitol Hill will also feature in a Paris meeting on Friday and Saturday of Group of 20 finance ministers and central bank chiefs.

With international coordination of post-crisis reforms still a serious challenge before policy-makers, Senator Richard Shelby urged a Dodd-Frank slow-down.

"Regulators must not compound the mistakes of Dodd-Frank by promulgating uninformed rules," said Shelby, the committee's top Republican member, at the hearing.

BERNANKE ON DEBIT CARD FEE

Touching on a Dodd-Frank rule that restricts debit card fees, an issue of keen concern to banks and card groups such as Visa Inc, Federal Reserve Chairman Ben Bernanke told the panel a small-bank exemption from the fee may pose problems.

"It is possible the exemption will not be effective in the market place," Bernanke said.

The Fed, the SEC and the CFTC must put into practice hundreds of new rules stemming from Dodd-Frank, written and passed by congressional Democrats and President Barack Obama over the fierce opposition of Republicans and Wall Street.

U.S. core consumer prices rose at their quickest pace in more than a year in January as the Federal Reserve's monetary policy came into focus again with signs of inflation creeping into the global economy.

Reports that Iran appeared intent on sending two warships through the Suez Canal also weighed on investors already nervous about growing civil unrest in the Middle East.

"How the market shrugged off the Egypt unrest and the continued sporadic unrest throughout the Middle East ... confirm(s) that buyers are using any pause in the market as an opportunity to get in," said Henry (Hank) Smith, chief investment officer at Haverford Trust Co in Philadelphia.

The Dow Jones industrial average .DJI was up 8.10 points, or 0.07 percent, at 12,296.27. The Standard & Poor's 500 Index .SPX edged up 1.26 points, or 0.09 percent, at 1,337.58. The Nasdaq Composite Index .IXIC put on 2.47 points, or 0.09 percent, at 2,828.03.

On Wednesday, the S&P 500 rose to double its bear market low two years ago, boosted by earnings and M&A announcements. The index has risen more than 27 percent since the end of August.

The Philadelphia Federal Reserve said its Mid-Atlantic business activity index rose sharply in February, also helping to trim losses.

Smith said most recent economic data has pointed to a reacceleration in the economy.

Helping to support the Dow, manufacturer 3M (MMM.N) rose 0.5 percent at $92.80.

Data storage equipment maker NetApp Inc (NTAP.O) forecast weaker-than-expected profit, blaming a components shortage. Its shares fell 7.8 percent to $53.92.

New U.S. claims for unemployment benefits rose last week, partially reversing the prior week's hefty decline.

(Reporting by Caroline Valetkevitch; additional reporting by Edward Krudy; editing by Jeffrey Benkoe)

The Labor Department said on Thursday its core Consumer Price Index, which excludes food and energy costs, increased 0.2 percent -- the largest gain since October 2009. The index rose 0.1 percent in December.

The increase, which was above economists' expectations for a 0.1 percent gain, was driven by rises in the cost of apparel, shelter and airline fares.

Economists largely agreed inflation had bottomed but they said the turnaround in prices was unlikely to be so swift as to trouble policymakers at the Federal Reserve, who are still pumping money into the economy.

"It is in line with our view that the disinflation process bottomed in the fourth quarter. We do not see pricing power being passed along yet," said Michael Gapen, a senior U.S. economist at Barclays Capital in New York.

The still soft inflation scenario was supported by a rise in applications for unemployment benefits last week, which suggested the labor market recovery would remain gradual, restricting wage growth.

Data on Thursday showed that although the economic recovery is gathering steam as the manufacturing sector maintains its strong expansion pace, growth is still not that robust.

The Conference Board's measure of leading indicators rose 0.1 percent to 112.3 in January, following a 0.8 percent gain in December.

U.S. government debt prices rose and the dollar fell broadly. Stocks on Wall Street were lower.

Overall CPI rose 0.4 percent after increasing by the same margin in December. Food and energy accounted for over two-thirds of the rise in overall CPI. Economists had expected headline CPI to rise 0.3 percent last month.

The report came a day after the government reported core wholesale prices increased at their fastest pace in more than two years in January, raising concerns among some investors that inflation might be building up.

Despite the slightly above expectations rise in January, the consumer inflation report tended to support the Fed's views that inflation remains too low.

This is in stark contrast to other economies, where surging commodity prices have put central banks on the alert for inflation. The January consumer inflation report showed prices for new vehicles and used cars declining.

In the 12 months to January, core inflation rose 1.0 percent after rising 0.8 percent in December. That was the largest gain since March. Economists had expected a year-on-year rate of 0.9 percent.

In a second report, the Labor Department said initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 410,000, partially reversing the prior week's hefty decline.

Economists had forecast claims rising to 400,000. The claims data covers the survey period for part of the government's employment report for February.

Iranian state television reports that two Iranian warships were due to cross the strategic Suez Canal also weighed on investors already nervous about growing civil unrest in the Middle East.

U.S. core consumer prices rose at their quickest pace in more than a year in January as the Federal Reserve's monetary policy was again in focus with signs of inflation creeping into the global economy.

"The rise in CPI wasn't that huge, but in this environment everyone is hyper-sensitive to any inflation," said T.C. Robillard Jr., senior research analyst at Signal Hill in Baltimore. "Even being a touch higher will have the inflation hawks nervous."

Markets trimmed some losses after the Philadelphia Federal Reserve said Mid-Atlantic business activity improved sharply in February.

The Dow Jones industrial average .DJI fell 27.39 points, or 0.22 percent, to 12,260.78. The Standard & Poor's 500 Index .SPX lost 2.80 points, or 0.21 percent, to 1,333.52. The Nasdaq Composite Index .IXIC dropped 2.92 points, or 0.10 percent, to 2,822.64.

The S&P 500 rose Wednesday to double its bear market low two years ago, boosted by earnings and M&A announcements. The index has risen more than 27 percent since the end of August.

Data storage equipment maker NetApp Inc (NTAP.O) forecast weaker-than-expected profit, blaming a components shortage. Its shares fell 7.2 percent to $54.34.

New U.S. claims for unemployment benefits rose last week, partially reversing the prior week's hefty decline, but the data still pointed at gradual labor market recovery.

(Additional reporting by Ryan Vlastelica; editing by Jeffrey Benkoe)

The Labor Department said on Thursday its core Consumer Price Index, excluding food and energy, increased 0.2 percent -- the largest gain since October 2009. The index rose 0.1 percent in December.

The increase in the core rate, which was above economists' expectations for a 0.1 percent gain, was driven by rises in the cost of apparel, shelter and airline fares. The rise suggests the disinflationary trend in core inflation has bottomed.

The still soft inflation scenario was supported by a rise in applications for unemployment benefits last week, which suggested the labor market recovery would remain gradual, restricting wage growth.

"It is in line with our view that the disinflation process bottomed in the fourth quarter. We do not see pricing power being passed along yet," said Michael Gapen, a senior U.S. economist at Barclays Capital in New York.

U.S. stock index futures added to losses after the data, while government bond prices held steady at higher levels. The dollar firmed versus the euro and the yen.

Overall CPI rose 0.4 percent after increasing by the same margin in December. Food and energy accounted for over two-thirds of the rise in overall CPI.

Economists had expected headline CPI to rise 0.3 percent last month.

The report came a day after the government reported core wholesale prices increased at their fastest pace in more than two years in January, raising concerns among some investors that inflation might be building up.

Despite the slightly above expectations rise in January, the consumer inflation report tended to support the Federal Reserve's views that inflation remains too low.

This is in stark contrast to other economies, where surging commodity prices have put central banks on the alert for inflation. The January consumer inflation report showed prices for new vehicles and used cars declining.

In the 12 months to January, core inflation rose 1.0 percent after rising 0.8 percent in December. That was the largest gain since March. Economists had expected a year-on-year rate of 0.9 percent.

In a second report, the Labor Department said initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 410,000, partially reversing the prior week's hefty decline.

Economists had forecast claims rising to 400,000. The claims data covers the survey period for part of the government's employment report for February.

But the correlation between claims and nonfarm payrolls has weakened somewhat. Claims have been hovering above the 400,000 mark, a sustained breach of which is regarded by economists as signaling strong jobs growth.

"When I put this with other data out there, it continues to reinforce the idea that things are slowly improving. Not as fast as a lot of people want, but we are improving," said TC Robillard, a senior research analyst at Signal Hill in Baltimore.

U.S. core consumer prices rose at their quickest pace in more than a year in January at a time when the Federal Reserve's monetary police is again in focus as signs of inflation creep back into the global economy.

"Portfolios managers who have only just started positioning their portfolios for higher inflation are likely to accelerate their moves based on these increasingly higher numbers," said Steven Neimeth, money manager at SunAmerica Asset Management In Jersey City, New Jersey, which manages $9 billion.

New U.S. claims for unemployment benefits rose last week, partially reversing the prior week's hefty decline, but the data still pointed at gradual labor market recovery.

S&P 500 futures fell 3.5 points and were below 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 dropped 20 points, and Nasdaq 100 futures lost 5 points.

The S&P 500 rose Wednesday to double its bear market low just two years ago, boosted by earnings and M&A announcements. The index has risen more than 27 percent since the end of August.

Nvidia Corp (NVDA.O) said late Wednesday that first-quarter sales would rise 6 percent to 8 percent from the fourth quarter on strong demand for its processors for smartphones and tablets. Its shares fell 2.9 percent to $22.70 in premarket trade.

Williams Cos Inc (WMB.N) plans to split its pipeline and exploration businesses into separate public entities. Its shares rose 11.24 percent to $30.88.

Cliffs Natural Resources Inc (CLF.N) reported a better-than-expected surge in quarterly profit as demand and prices for its iron ore and steel-making coal soared. Its shares rose 10.6 percent to $102.

Data storage equipment maker NetApp Inc (NTAP.O) gave a weaker-than-expected profit forecast, blaming a components shortage, pushing the company's shares down 7.8 percent to $54.

At 10 a.m. EST (1500 GMT) the Philadelphia Federal Reserve Bank releases the February business activity survey.

(Additional reporting by Ryan Vlastelica; Editing by Jeffrey Benkoe)

The Labor Department said on Thursday its core Consumer Price Index, excluding food and energy, increased 0.2 percent -- the largest gain since October 2009. The index rose 0.1 percent in December.

The increase in the core rate, which was above economists' expectations for a 0.1 percent gain, was driven by rises in the cost of apparel, shelter and airline fares. The rise suggests the disinflationary trend in core inflation has bottomed.

The still soft inflation scenario was supported by a rise in applications for unemployment benefits last week, which suggested the labor market recovery would remain gradual, restricting wage growth.

"It is in line with our view that the disinflation process bottomed in the fourth quarter. We do not see pricing power being passed along yet," said Michael Gapen, a senior U.S. economist at Barclays Capital in New York.

U.S. stock index futures added to losses after the data, while government bond prices held steady at higher levels. The dollar firmed versus the euro and the yen.

Overall CPI rose 0.4 percent after increasing by the same margin in December. Food and energy accounted for over two-thirds of the rise in overall CPI.

Economists had expected headline CPI to rise 0.3 percent last month.

The report came a day after the government reported core wholesale prices increased at their fastest pace in more than two years in January, raising concerns among some investors that inflation might be building up.

Despite the slightly above expectations rise in January, the consumer inflation report tended to support the Federal Reserve's views that inflation remains too low.

This is in stark contrast to other economies, where surging commodity prices have put central banks on the alert for inflation. The January consumer inflation report showed prices for new vehicles and used cars declining.

In the 12 months to January, core inflation rose 1.0 percent after rising 0.8 percent in December. That was the largest gain since March. Economists had expected a year-on-year rate of 0.9 percent.

In a second report, the Labor Department said initial claims for state unemployment benefits increased 25,000 to a seasonally adjusted 410,000, partially reversing the prior week's hefty decline.

Economists had forecast claims rising to 400,000. The claims data covers the survey period for part of the government's employment report for February.

But the correlation between claims and nonfarm payrolls has weakened somewhat. Claims have been hovering above the 400,000 mark, a sustained breach of which is regarded by economists as signaling strong jobs growth.

"When I put this with other data out there, it continues to reinforce the idea that things are slowly improving. Not as fast as a lot of people want, but we are improving," said TC Robillard, a senior research analyst at Signal Hill in Baltimore.

The S&P 500 rose Wednesday to twice its value from just two years ago, when it hit a bear market low, boosted by earnings and M&A announcements. The index has risen more than 27 percent since the end of August.

The latest data on weekly jobless claims and inflation and a regional business activity index from Philadelphia are due later in the morning as the Federal Reserve's monetary policy resurfaces as an area of debate.

"Now that the assumption is that the economy is recovering, there will be two levels of focus," said Rick Meckler, president of investment firm LibertyView Capital Management in New York.

"One will be the inflation numbers to see whether the recovery is bringing inflation and therefore a rise in interest rates, and the second factor will be does the recovery have enough strength."

S&P 500 futures fell 0.8 point and were below 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 dropped 5 points, and Nasdaq 100 futures lost 3.5 points.

North Sea Brent crude oil prices were little changed by held near 2-1/2 year highs as fresh Israel-Iran tensions and spreading civil unrest in the Middle East stoked fears of supply disruptions.

Late Wednesday, Nvidia Corp (NVDA.O) said first-quarter sales would rise 6 percent to 8 percent from the fourth quarter on accelerating sales of its processors for smartphones and tablets.

The U.S. Food and Drug Administration approved expanded use of Allergan Inc's (AGN.N) weight-losing stomach band for people who are less obese than current candidates, the company said Wednesday.

European shares were flat on Thursday after hitting 29-month highs in the previous session, with falls in industrial goods firms offsetting gains in food stocks. Major Asian indexes edged higher overnight.

At 8:30 a.m. EST, investors will focus on the Labor Department release of the January Consumer Price Index. Economists in a Reuters survey expect a 0.3 percent increase, compared with a 0.4 percent rise in December.

Due at the same time, investors will eye weekly U.S. jobless claims, while at 10 a.m. EST the Philadelphia Federal Reserve Bank releases the February business activity survey.

(Editing by Jeffrey Benkoe)

The maker of Nescafe coffee and Gerber baby food said it was well placed to cope with rising commodity prices by making cost savings and pushing up its own prices.

"We saw a significant uptick in raw material prices in the second half," Chief Financial Officer Jim Singh said in a conference call on Thursday. "We expect 2.5-3 billion Swiss francs additional input costs in 2011."

The increase would be about 8-10 percent on a cost base of about 30 billion Swiss francs, a Nestle spokesman said.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"I cannot tell you what the pricing will be, that depends on the different markets," Singh said.

Underlying sales growth in 2010 rose 6 percent to beat a Reuters forecast of 5.5 percent, and accelerated to 6.4 percent in the fourth quarter, making the group confident of meeting its long-standing target of 5-6 percent growth in 2011.

Nestle shares were up 1.6 percent at 0852 GMT, outperforming a 0.8 percent rise in the STOXX 600 European Food & Beverage index.

Peers Danone and Unilever recently said they were confident about passing on higher costs, but Kraft Foods cut its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon to Novartis.

Annual sales at its Nespresso premium coffee capsules brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high, but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

The S&P 500 rose on Wednesday to twice its value from just two years ago, with stocks boosted by forecast-beating results from Dell (DELL.O) earnings and M&A announcements.

At 1330 GMT, investors will focus on the Labor Department release of the January Consumer Price Index. Economists in a Reuters survey expect a 0.3 percent increase compared with a 0.4 percent rise in December.

Investors will eye weekly U.S. jobless claims also at 1330 GMT, while at 1500 GMT the Philadelphia Federal Reserve Bank releases February business activity survey.

Top regulators will appear before the U.S. Senate Banking Committee on Thursday, with Republicans escalating their push to delay and cut funding to the Dodd-Frank financial reform laws.

Earnings news will also be a focus. These include fourth-quarter numbers from Apache Corp. (APA.N), Dr Pepper Snapple Group Inc. (DPS.N), Ecolab Inc. (ECL.N), Nordstrom (JWN.N) and Waste Management (WM.N).

Late Wednesday, Nvidia Corp (NVDA.O) said quarterly sales would rise 6 to 8 percent from the fourth quarter, which was above analysts' expectations as sales of its cutting-edge processors for smartphones and tablets accelerate this year.

CBS Corp (CBS.N) reported late Wednesday that fourth-quarter revenue rose 11 percent to $3.9 billion, beating the $3.85 billion expected by analysts on average, according to Thomson Reuters I/B/E/S.

Williams Cos (WMB.N) shares jumped 12 percent in post-market trade late on Wednesday after it said it planned to split the company's pipeline and exploration businesses into two separate publicly traded entities.

CHS Inc (CHSCP.O), the largest U.S. farm co-operative, said late on Wednesday that it was looking to expand investments in Brazil to boost its presence as a grain buyer and exporter in the booming soy sector.

The U.S. Food and Drug Administration approved expanded use of Allergan Inc's (AGN.N) stomach band, allowing it to be implanted in people who are less obese than those now approved as candidates for the weight-loss surgery, the drug company said late on Wednesday.

North Sea Brent crude oil prices extended gains to hold at 2-1/2 year highs of more than $104 a barrel on Thursday, as fresh Israel-Iran tension fed spreading unrest in the Middle East and stoked fears of a disruption of oil flows in the region.

European shares were flat on Thursday after hitting 29-month highs in the previous session, with falls in industrial goods firms offset by gains in food stocks after upbeat results from Nestle (NESN.VX).

(Reporting by Joanne Frearson. Editing by Jane Merriman)

The maker of Nescafe coffee and Gerber baby food said it was well placed to cope with rising commodity prices by making cost savings and pushing up its own prices.

"We saw a significant uptick in raw material prices in the second half," Chief Financial Officer Jim Singh said in a conference call on Thursday. "We expect 2.5-3 billion Swiss francs additional input costs in 2011."

The increase would be about 8-10 percent on a cost base of about 30 billion Swiss francs, a Nestle spokesman said.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"I cannot tell you what the pricing will be, that depends on the different markets," Singh said.

Underlying sales growth in 2010 rose 6 percent to beat a Reuters forecast of 5.5 percent, and accelerated to 6.4 percent in the fourth quarter, making the group confident of meeting its long-standing target of 5-6 percent growth in 2011.

Nestle shares were up 1.6 percent at 0852 GMT, outperforming a 0.8 percent rise in the STOXX 600 European Food & Beverage index.

Peers Danone and Unilever recently said they were confident about passing on higher costs, but Kraft Foods cut its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon to Novartis.

Annual sales at its Nespresso premium coffee capsules brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high, but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

Unrest spreading across the oil-rich Middle East and North Africa also helped boost the appeal of safe-haven assets, with Swiss francs gaining while yields on U.S. 10-year Treasuries and Bunds eased.

Robust earnings and merger activity have boosted global equities recently. Data from Thomson Reuters StarMine showed three quarters of U.S. companies met or beat market expectations for earnings in the fourth quarter.

"Many people are still optimistic about the market because the global economy is doing well and earnings for large U.S. companies have been quite good," said Heinz-Gerd Sonnenschein, equity markets strategist at Deutsche Postbank in Bonn.

Adding to positive sentiment, minutes from the U.S. Federal Reserve's Jan 25-26 policy session showed officials raised their forecasts for economic growth last month, though they still expected slow progress in reducing unemployment.

World equities measured by the MSCI All-Country World Index .MIWD00000PUS rose 0.3 percent, hitting their highest level since August 2008.

The index has risen 4.7 percent so far this year, but its valuations remain modest against a 10-year average. The MSCI global index has a 12-month forward price-to-earnings of 12.5 times against a 10-year average of 14.8, Thomson Reuters Datastream shows.

The MSCI emerging market index .MSCIEF put on 0.3 percent, though it is down 3.4 percent for the year as many investors shift out of the booming developing markets on concerns over inflation.

EMERGING MARKETS

However, some remain positive on emerging market shares.

"Emerging markets earnings remain solid and there are reasons to expect they will improve relative to developed markets," Citigroup said in a note. "Emerging market relative valuations are at their lowest level since 2008. The pullback provides an opportunity to buy." Europe's FTSEurofirst 300 .FTEU3 gained 0.2 percent, aided by forecast-beating earnings from Swiss food group Nestle (NESN.VX) and computer consultancy Capgemini (CAPP.PA). In Asia, Japanese shares .N225 added 0.3 percent, up for the fourth straight session to a 9-1/2 month closing high.

London crude prices extended gains to hold at 2-1/2 year highs of more than $104 a barrel, as fresh Israel-Iran tension fed spreading unrest in the Middle East and stoked fears of a disruption of oil flows in the region.

Copper, however, fell for the third straight session, down 0.8 percent after hitting a record high on Monday.

The dollar was down 0.2 percent at 0.9567 Swiss francs, while the euro fell 0.3 percent to 1.2972 francs.

"If events in the Middle East do escalate we will see safe haven flows which will help the Swiss franc, but equities are still holding up for now," said Kenneth Broux, market economist at Lloyds.

The dollar, however, was up 0.1 percent against a basket of major currencies .DXY.

(Additional reporting by Harpreet Bhal, Scott Barber and Jessica Mortimer; Editing by John Stonestreet)

It reported underlying sales growth accelerated to 6.4 percent in the fourth quarter and said it was confident of achieving 5-6 percent sales growth and an improvement in earnings before interest and taxes (EBIT) margin in 2011.

"We are starting 2011 with continued momentum, well placed to face uncertainties ahead, including volatile raw material prices," the maker of Gerber baby food and Nescafe coffee said in a statement on Thursday.

Nestle can rely on its strong presence in emerging markets, where underlying sales growth was 11.5 percent in 2010, and the appeal of brands such as KitKat chocolate bars to offset rising costs for milk, cocoa, coffee, sugar and grain.

"2010 growth figures should give confidence on our ability to drive the top line organically in 2011," Chief Financial officer Jim Singh said in a conference call.

Underlying sales from Nestle's food and beverage business rose 6 percent to beat a Reuters forecast of 5.5 percent, making it confident of meeting its long-standing target of 5-6 percent growth in 2011.

Peers Danone (DANO.PA) and Unilever (ULVR.L) (UNc.AS) recently said they were confident about passing on higher costs but Kraft Foods (KFT.N) lowered its 2011 forecast for earnings growth because it expects some consumers to be put off by price increases.

"We see Nestle as best placed to escape the volatility of costs which are impacting the food sector in 2011," Deborah Aitken, an analyst at brokers Bryan Garnier said.

Full-year net profit at Nestle rose to 34.2 billion Swiss francs, including the proceeds from the sale of its remaining stake in eyecare group Alcon (ACL.N) to Novartis (NOVN.VX).

Annual sales at its premium coffee capsules Nespresso brand exceeded 3 billion Swiss francs ($3.1 billion) for the first time, Nestle said.

"A very strong set of figures with underlying earnings ... on the back of stronger-than-expected top-line growth driven by emerging markets and Asia. Its outlook statement is reassuring," Kepler Research analyst Jon Cox said.

Vontobel analyst Jean-Philippe Bertschy said the dividend increase of 15.6 percent to 1.85 francs per share was high but the lack of comment on an additional share buyback was a bit disappointing.

Nestle currently has a 10 billion Swiss franc share buyback under way and is expected to conclude it in the first half of the year.

Nestle shares, which gained 9 percent in 2010, lost about 4 percent since the beginning of the year, as investors worry about input cost inflation and forex headwinds.

They trade at a slight premium to Danone, Kraft and Unilever at about 14 times estimated 2012 earnings and were indicated to open 1.6 percent higher, pre-market data showed.

($1=.9669 Swiss Franc)

(Editing by David Hulmes and Sophie Walker)

Japanese shares .N225 led gains in the region, rising to a fresh 9- month peak, boosted by healthy corporate earnings, strong inflows from foreign investors and gains on Wall Street. .N

The Nikkei ended up 0.3 percent, with the broader Topix index .TOPX up 0.7 percent. .T

Stocks in most of Asia ex-Japan also edged higher with buying across the materials, consumers and the energy sectors, though benchmark indexes fell in Singapore .FTSTI and South Korea .KS11, where the government unveiled cash support for troubled saving banks.

The MSCI's index of Asia Pacific shares outside Japan .MIAPJ0000PUS was up 0.2 percent, moving further away from a two-month low tested last Friday.

Japanese shares have gained some 6 percent this year, making it the best-performing Asian market so far in 2011, while Asian stocks outside Japan .MIAPJ0000PUS are down more than 2 percent as worries about growing inflationary pressures prompt foreign investors to rotate money out of emerging economies.

While Asian central banks have scrambled to tighten policy, some countries are still perceived to be falling behind in fighting inflation, making investors cautious about adding exposure to these markets even though recent steep drops have made valuations more attractive.

"Emerging market tightening is falling short of what needs to be done due to concerns that higher rates will lead to currency strength," Brown Brothers Harriman strategists said in a note.

"As such, more and more EM countries are being viewed as behind the curve and so the current period of EM underperformance could continue until more signs are seen they are getting back ahead of the curve."

Halfway through the first quarter of 2011, the worst performing markets within the region are India, Philippines, Thailand and Indonesia though indications show that some of them may be nearing a floor for now.

Much of the outflows from these countries have gone into developed markets, which have also benefited from a steady flow of encouraging economic data and robust corporate earnings.

Minutes of the Fed's Jan 25-26 policy session on Wednesday showed officials were more confident on economic recovery, though the job market recovery remained a concern.

Japan has been one of the big beneficiaries of these flows with overseas investors net buyers of Japanese stocks last week for the 15th straight week, the longest buying streak since late 2005/early 2006, according to latest data.

Asia equity ETF redemptions slowed to just $55 million last week after averaging $369 million in the previous three weeks while local buying in India was the biggest since late 2009, data from Trim Tabs Investment Research showed, indicating some of the selling may have run its course.

OIL RISES