Published: Dec 02, 2010 6:48 PM EST
Updated: Dec 02, 2010 3:48 PM EST

NEW YORK (AP) - Signs that the retail and housing markets are improving encouraged traders to extend a stock rally into a second day Thursday.

Major retailers reported sales in November that were stronger than analysts expected. Increased spending during the holiday season would be a strong signal that consumers are feeling more confident.

"Any sign that the consumer is doing better means that the economy will be doing better," said Drew Matus, a senior economist at UBS.

Costco Wholesale Corp., Target Corp. and Limited Brands Inc all beat Wall Street sales forecasts. Teen retailer Abercrombie & Fitch Co. jumped 10.5 percent after reporting that its sales soared 32 percent.

"The consumer is strong and month after month retailing has been very strong," said Ryan Detrick, the chief technical strategist at Schaeffer's Investment Research. "If you take a step back it's clear that the U.S. economy continues to slowly expand."

The National Association of Realtors said the number of people who signed contracts to buy homes jumped 10.4 percent in October. Economists expected a slight decline. Home builders KB Home and Toll Brothers Co. each rose by more than 3 percent.

The Dow Jones industrial average rose 92.14, or 0.8 percent, to 11,347.92. The Dow jumped 2.3 percent Wednesday, its biggest gain since Sept. 1, after a report showed that private employers were adding jobs.

The Standard and Poor's 500 index rose 11.67, or 1 percent, to 1,217.74. The Nasdaq composite index rose 21.98, or 0.9 percent, to 2,571.41.

The strong economic reports overshadowed an unexpected rise in new claims for unemployment benefits. The Labor Department said first-time unemployment claims rose to 436,000 last week.

Traders found a silver lining in the report, however: the average number of new unemployment claims over the past month fell to a two-year low, signaling that the job market may be improving.

Shares rose overseas after the European Central Bank said it will keep its benchmark interest rate at a record low 1 percent. Investors had hoped that bank would announce more purchases of bonds issued by struggling European countries including Ireland, Italy and Spain.

The Euro Stoxx 50 index, which tracks blue chip companies in countries that use the euro, rose 1.5 percent. The dollar fell 0.7 percent against an index of six currencies.

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