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* China and euro zone manufacturing show improvement
* Initial jobless claims fall more than expected
* Procter & Gamble gains after results, outlook
* Indexes up: Dow 0.9 pct, S&P and Nasdaq 1 pct
By Chuck Mikolajczak
NEW YORK, Aug 1 (Reuters) - U.S. stocks rose on Thursday, with the S&P 500 topping the 1,700 level for the first time, after economic data pointed to a modestly improving global economy and kept afloat expectations for continued support from global central banks.
China's official PMI for manufacturing rose to 50.3 in July, defying expectations it would fall and suggesting a pick up in activity as growth in new orders increased.
Adding to the optimism, Markit's Eurozone Manufacturing PMI rose to 50.3 in July from June's 48.8, topping the 50 threshold for growth for the first time since July 2011.
But a rival HSBC report on China's manufacturing was more gloomy, falling to 47.7 in July, the weakest reading since August 2012, which tempered growth expectations.
Both the Bank of England and European Central Bank kept interest rates at 0.5 percent, with the Bank of England opting not to revive its bond-buying program while ECB President Mario Draghi reiterated the ECB's rates will remain at their present level or lower for an "extended period" of time.
In its latest policy statement on Wednesday, the Federal Reserve gave no hint that a reduction in the pace of its bond-buying program was imminent, as the economy continues to recover but is still in need of support.
"Bottom line, it's still free money everywhere - whether it is in the U.S., the Bank of England, the ECB - they are all saying the same thing and everyone is kind of loving it," said Joe Saluzzi, co-manager of trading at Themis Trading in Chatham, New Jersey.
The Dow Jones industrial average rose 135.47 points or 0.87 percent, to 15,635.01, the S&P 500 gained 17.25 points or 1.02 percent, to 1,702.98 and the Nasdaq Composite added 36.34 points or 1 percent, to 3,662.71.
Weekly initial jobless claims data showed a drop of 19,000 to a seasonally-adjusted 326,000, the lowest since January 2008 and better than the 345,000 forecast, suggesting a steadily improving labor market.
The drop in initial claims, coupled with Wednesday's better-than-expected ADP employment report, bodes well for payrolls data on Friday.
Financial data firm Markit said its final U.S. Manufacturing Purchasing Managers Index for July rose to 53.7, the highest since March, beating both a preliminary July estimate of 53.2 and June's 51.9 reading.
The Institute for Supply Management said its index of national factory activity rose to 55.4 in July, its highest level since June 2011, from 50.9 in the prior month and topping expectations for 52.
But construction spending dropped 0.6 percent in June, below expectations calling for a 0.4 percent rise.
The benchmark S&P index had traded within 10 points of the 1,700 level in the prior 10 sessions, representing a technical resistance level which could lead to more gains if convincingly pierced.
Procter & Gamble Co rose 2.1 percent to $81.97 as the top boost to the Dow after the world's largest household products maker posted a quarterly profit that fell less than expected and said full-year's earnings should rise at least as much as last year. The S&P consumer staples index advanced 1.1 percent.
But Exxon Mobil Corp dipped 1.8 percent to $92.06, the only component on the Dow in the red, after a lower-than-expected decline in second-quarter profit.
Yelp Inc surged 19.6 percent to $49.95 after the consumer reviews website posted a smaller-than-expected quarterly loss and forecast third-quarter revenue above analysts' expectations.
According to Thomson Reuters data through Wednesday morning, Of the 331 companies in the S&P 500 that have reported earnings to date for the second quarter, 67.7 percent have reported earnings above analyst expectations.
As earnings season enters its latter stages, 40 companies in the S&P 500 are expected to report earnings on Thursday, including Kraft Foods Group Inc after the close.