U.S. stocks rose on Thursday as a surprising quarterly profit from Alcoa Inc got third-quarter earnings off to a strong start.

Alcoa gained 1.1 percent to $14.35 and rose as high as $15.10, a day after the Dow component posted its first profit after three consecutive quarterly losses, on cost savings and higher aluminum prices.

The S&P materials index <.GSPM> gained 2 percent.

The rally lost some of its steam in the afternoon as the latest U.S. bond auction was poorly received after two previous successful debt sales, prompting some investors to trim holdings in U.S. assets.

Adding to positive sentiment, U.S. retailers posted generally strong same-store sales figures, while the Labor Department said the number of U.S. workers filing new jobless claims slid to a nine-month low last week.

You had more positive economic news, and Alcoa numbers were better than expected on both revenue and net income. So that lends credibility to the bulls' thesis that the economy is gaining momentum, said Jim Awad, managing director at Zephyr Management in New York.

The Dow Jones industrial average <.DJI> rose 61.29 points, or 0.63 percent, to end at 9,786.87. The Standard & Poor's 500 Index <.SPX> gained 7.90 points, or 0.75 percent, to 1,065.48. The Nasdaq Composite Index <.IXIC> advanced 13.60 points, or 0.64 percent, at 2,123.93.

The S&P 500 is now up 57.5 percent from its 12-year closing low on March 9.

U.S. retailers posted their first monthly sales increase in more than a year, suggesting that recession-battered consumers might be regaining their ability, and desire, to spend again.

Store chains such as Macy's Inc rose 5.1 percent to $19.53 and Abercrombie & Fitch Co gained 5.5 percent to $34.46. Kohl's Corp rose 2.4 percent to $59.97. The Standard & Poor's Retail Index <.RLX> added 1.8 percent.

Home builders' shares rallied as members of Congress discussed a possible extension of an $8,000 federal tax credit that covers first-time home buyers. The tax credit is set to expire on November 30. A Dow Jones index of home builders' stocks <.DJUSHB> rose 6.2 percent, its best day since mid-May.

U.S. crude oil futures prices gained $2.12, or 3 percent, to settle at $71.69 a barrel, pushing shares of Chevron up 1.3 percent at $71.45.

On the Nasdaq, shares of Adobe Systems rose 3.2 percent to $34.33 after Deutsche Bank raised its price target on the company.

On the downside was PepsiCo

, whose shares slipped 1.3 percent to $60.39 after the world's second-largest soft drink maker reported weaker-than-expected quarterly revenue on Thursday. Its profit, however, topped expectations.

Volume was below average on the New York Stock Exchange, with 1.28 billion shares changing hands, under last year's estimated daily average of 1.49 billion, while on the Nasdaq, about 2.39 billion shares traded, above last year's daily average of 2.28 billion.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of 11 to 4, while on the Nasdaq, about 15 stocks rose for every 11 that fell.

(Editing by Jan Paschal)