Stocks rallied for a third day on Thursday on relief that a ratings cut by S&P in General Electric was just one notch and no further cuts loomed, while data showed signs of stabilization in consumer spending.

GE jumped more than 14 percent to $9.72 after Standard & Poor's ratings service lowered its credit rating on the conglomerate by one notch to 'AA+,' citing the performance of its finance unit, and assigned a stable outlook.

Investors had feared the downgrade would be deeper or the outlook negative.

Adding to the positive tone were comments from Bank of America chief executive Kenneth Lewis, who said he is confident his bank would pass the government's stress test and not need any more government capital.

Lewis also said the bank was profitable in the first two months, echoing statements by Citigroup and JP Morgan executives in the two prior trading sessions. Bank of America was up 15 percent to $5.68.

It's real good news from banks, said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York. It indicates they are profitable and they are starting to increase their lending -- you couldn't ask for more than that.

They've all weighed in and given us some real hard evidence that things may not be as bad as we thought.

Wal-Mart Stores Inc , up 3.1 percent at $48.94, was among the Dow's top advancers after a government report that showed sales at U.S. retailers fell by an unexpectedly small margin in February.

The Dow Jones industrial average <.DJI> rose 181.51 points, or 2.62 percent, to 7,111.91. The Standard & Poor's 500 Index <.SPX> gained 21.59 points, or 2.99 percent, to 742.95. The Nasdaq Composite Index <.IXIC> climbed 37.52 points, or 2.74 percent, to 1,409.16.

Investor sentiment was also lifted by news of a takeover in the biotechnology sector, bolstering shares of healthcare companies. Gilead Sciences Inc said it will buy CV Therapeutics Inc for about $1.4 billion, stepping in the middle of a hostile bid for CV from Japan's Astellas Pharma Inc.

Gilead was off 0.4 percent to $43.86, while CV's shares soared nearly 30 percent to $20.76.

(Additional reporting by Leah Schnurr; Editing by James Dalgleish)

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