Stocks edge higher as jobless claims drop

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By Associated Press

NEW YORK (AP) — Encouraging news on the labor market and efforts to get more Democrats to support the compromise on extending tax cuts have stocks edging higher in early trading Thursday.

Before the market opened, the Labor Department reported that first time claims for unemployment benefits dropped last week to the second-lowest level this year. Claims fell to 421,000, below the 428,000 figure that Wall Street expected.

The four-week average of claims also slid for the fifth straight week, reaching the lowest level since August 2008, before the darkest days of the financial crisis.

The Dow Jones industrial average is up 13 points, or 0.1, to 11,385. The broader S&P 500 index is up 4, or 0.4, to 1,232. The Nasdaq composite index is up 10, or 0.4, to 2,619.

Treasurys are inching up after suffering two days of steep losses, causing their yields to drop. The yield on the 10-year note slipped to 3.22 percent. The yield, which help set rates for a wide variety of loans, reached as high as 3.33 percent Wednesday, the highest level in nearly six months.

President Barack Obama's compromise with Republicans would let all Americans keep Bush-era tax cuts that were set to expire at the end of the month. But it still needs approval from Congress. The White House has been pushing Democrats to back the measure, arguing that if the plan is defeated, the economy could slip back into recession. It also contains a provision for extended unemployment benefits. Several Democrats predicted the compromise would pass with widespread Republican support.

Anticipation that the tax cut proposal would pass has helped push Treasurys lower and stocks higher this week. The S&P 500 index closed Wednesday at a new yearly high of 1,228.28. It reached its last high on Nov. 5.

Economists expect the tax package to lead to stronger growth in the U.S. economy. They're already raising their estimates for economic growth as a result. Goldman Sachs estimates the tax proposal could add between 0.5 and 1 percentage point to economic growth in 2011. A stronger economy diminishes the appeal of ultra-safe investments like Treasurys and raises the prospect of higher inflation.

The change in inflation expectations could make for a messy Treasury auction Thursday afternoon, when the government plans to sell $13 billion in 30-year Treasurys, currently paying 4.42 percent. Investors like the higher yields, but 30-year bonds would get hit the hardest if inflation picks up.