Stocks staged a modest rally Thursday as a mix of reassuring economic data and optimistic earnings news helped overcome some technology firms' gloomy profit outlooks.

Financial stocks climbed after Morgan Stanley became the latest investment firm to report profits that beat Wall Street's much-lowered expectations. Stocks also got a boost from the latest economic data, which showed a steadying U.S. job market.

``You get hit in the head with a two-by-four enough and it stops to hurt,'' said Tony Maramarco, a portfolio manager for David L. Babson & Co., which oversees $15 billion. ``We're at a time in the earnings-release cycle where the big names have already said what they have to say and any incremental piece of bad news has less and less effect on the market place.''

The Dow Jones industrial average gained 68.10 points to end at 10,715.43, while the Nasdaq composite index added 27.40 points at 2,058.64.

The Standard & Poor's 500 Index rose 13.88 points to 1,237.02.

Morgan Stanley jumped $5.60 to $64.95 on earnings that dropped 36 percent from year-ago levels but still beat analysts' estimates by almost 4 percent. Wall Street had slashed its forecast for the investment bank amid the stock market slump.

Citigroup Inc., up $2.90 at $53.55, and JP Morgan Chase & Co., up $1.52 at $47.12, lifted the blue-chip Dow after the Morgan Stanley news.

Transmeta, which designs power-saving chips for notebook computers, plunged more than 57 percent, or $7.24, to 5.36 after lowering its sales projection, citing a slowdown in shipments to its major market Japan.

Sanmina Corp. reversed an early loss to gain $1.10 to $21.18. The electronics maker said revenues will be below earlier estimates due to sluggish demand as high inventories rattle through the technology industry.

Web hosting company Exodus Communications Inc. dropped 66 cents to $1.59. The stock had scraped out a fresh year low of $1.18 and ranked as the most heavily traded on the Nasdaq. Wall Street house Salomon Smith Barney cut its investment rating, saying Exodus faces lowered prospects and a cash crunch. The stock's year-high was $69.

Aerospace giant and Dow component Boeing Inc. surrendered $3.36 tat $57.75. Analysts said aircraft demand could slow over the coming year, resulting in order delays or even cancellations for the plane maker Boeing.

But Eastman Kodak Co. rose $1.66 to $49.21 after the photo giant reiterated its earnings guidance and said it expects to generate at least $6 billion of free cash flow between 2001 and 2005.

Kodak, a Dow component also postponed a $650 million bond offering and plans a $75 million charge, both due to the ''anticipated bankruptcy filing'' by a customer.

Multilink Technology Corp., a maker of high-speed integrated circuits, surged more than 24 percent to $11.19 in its initial public offering on the Nasdaq.

The U.S. Labor Department said initial claims for state unemployment insurance benefits fell 34,000 to 400,000 in the week ended June 16 from a revised 434,000 in the prior week. This defied Wall Street projections for a modest drop to 423,000 from the unrevised measure of 428,000 in the June 9 week.

``Claims were a lot less than expected, which could be a sign that we may get a turnaround in the economy and stocks,'' said John Davidson, chief investment officer of Circle Trust, which oversees $8 billion. ``I think the economic data is holding up sectors of the market.''

The Fed is widely expected to cut interest rates by at least 25 basis points at its policy-setting meeting on June 26-27, but many investors are crossing their fingers for a steeper 50-basis-point cut.

``The earnings preannouncement jitters continue to prevail, but there is optimism the Fed will continue to be accommodative when it meets next week in lowering interest rates,'' said Alan Ackerman, a market strategist at brokerage Fahnestock & Co.

The central bank has already slashed rates five times this year -- 50 basis points each time -- to spark a recovery in the world's largest economy.

The next two weeks will be the busiest periods for quarterly preannouncements, when companies say whether or not they're likely to meet financial forecasts. So far, companies have issued 550 warnings. That's 8 percent lower than during the same point a quarter ago.

Advancing issues led decliners 8 to 7 on the New York Stock Exchange. Volume was 1.08 billion shares, compared with 1.03 billion at the same point Wednesday.

The Russell 2000 index rose 1.96 to 497.82.

Overseas, Japan's Nikkei stock average rose 2.3 percent. In Europe, stocks were mixed. Germany's DAX index rose 0.9 percent, Britain's FT-SE 100 fell 1.0 percent, and France's CAC-40 dropped 0.7 percent.

--The Associated Press and Reuters contributed to this report.