Stocks strong despite drop in retail sales

Investors kept their focus on an economic recovery, shaking off disappointing retail-sales news and buying stocks in riskier industries.

Wall Street's major indexes Thursday held on to their gains from the big rally that followed the Federal Reserve's upbeat comments a day earlier.

Financial, technology and energy companies were among the big winners, while stocks in relatively safer industries like health care and utilities, fell. Retailers declined after a worse-than-expected report on July sales. Also, the number of newly laid-off workers filing claims for unemployment benefits rose unexpectedly last week.

The Commerce Department said Thursday that retail sales fell 0.1 percent last month. Economists had expected a gain of 0.7 percent.

While autos, helped by the start of the Cash for Clunkers program, showed a 2.4 percent jump -- the biggest in six months -- there was widespread weakness at gasoline stations, department stores, electronics outlets and furniture stores, which all reported declines.

Investors seemed to look past the latest news and focus on the Fed's more upbeat assessment of the economy. Stocks soared Wednesday after the Fed reassured investors that the economy was "leveling out," not just easing its decline.

"Investors are prepared to give the economy some time to show a strong improvement," said Avery Shenfeld, chief economist at CIBC World Markets.

Department store sales fell 1.6 percent

and the broader category of general merchandise stores, which includes big chains such as Wal-Mart Stores Inc. and Target Corp., posted a decline of 0.8 percent. Wal-Mart reported virtually flat second-quarter income Thursday compared to a year ago, but the results beat Wall Street expectations. The world's largest retailer raised the low end of its profit outlook as a series of cost-cutting moves draw frugal shoppers away from rivals.

Still, the July weakness in overall retail sales highlighted worries about the potential strength of the recovery from the recession. Consumer spending accounts for about 70 percent of total economic activity.

"Households are in no position to drive a decent economic recovery," Paul Dales, U.S. economist at Capital Economics, wrote in a note to clients.

In other economic news, the dollar fell against other major currencies, while gold prices rose. Light, sweet crude rose 95 cents to $71.11 a barrel on the New York Mercantile Exchange.