US STOCKS-Dow, S&P break 3-day slump on data, financials

* Claims data, Philly Fed add to recovery hopes

* Financials, healthcare lead S&P 500 higher

* Dow up 0.7 pct, S&P up 0.8 pct, Nasdaq off 0.02 pct

* For up-to-the-minute market news click [STXNEWS/US]
(Updates to close)

By Leah Schnurr

NEW YORK, June 18 (Reuters) - The Dow and S&P 500 gained
on Thursday, breaking a three-day losing streak, as data on
the job market and regional manufacturing revived hopes that
the recession-hit economy is stabilizing.

After gaining as much as 40 percent from a 12-year closing
low in early March, the S&P 500 has eased as investors
reassessed the potential strength of an economic recovery. The
day's data revived optimism, but analysts said real
improvement is needed to sustain the rally.

Financials supported the stock market after being among
the week's biggest drags. Discover Financial Services (DFS.N)
gained 4 percent to $9.27 after it reported a
smaller-than-expected operating loss as bad loans grew less
than anticipated. For details, see[ID:nN18298778]

Lincoln National (LNC.N) rose 6.9 percent to $15.92 after
an upgrade from Credit Suisse, and the KBW insurance index
.KIX rose 1.8 percent. The S&P financial index .GSPF
gained 2.5 percent.

Data showed the number of people staying on jobless
benefits fell for the first time since January, while
manufacturing in the U.S. Mid-Atlantic region contracted much
less than expected in June. [ID:nN18379372]

"The data supports the case of those looking for the
bottom of the economy in this quarter," said Jim Awad,
managing director at Zephyr Management in New York.

The Dow Jones industrial average .DJI rose 58.42 points,
or 0.69 percent, to 8,555.60. The Standard & Poor's 500 Index
.SPX gained 7.66 points, or 0.84 percent, to 918.37. The
Nasdaq Composite Index .IXIC was off just 0.34 of a point,
or 0.02 percent, at 1,807.72.

The Nasdaq ended little changed as some big-cap technology
companies fell. BlackBerry maker Research In Motion (RIM.TO)
(RIMM.O) fell 4 percent to $73.50 after the bell after
reporting quarterly results. The stock had ended Nasdaq's
regular session at $76.55, down almost 1 percent.

Healthcare companies and other defensive names -- deemed
better positioned to withstand a still uncertain economy --
also buoyed the market. Merck & Co Inc (MRK.N) jumped 3.6
percent to $25.65.

"People are hedging their bets by saying we're going to
stay in, but stay in defensively to protect their gains," said
Awad.

Friday marks the end of the two-day quadruple witching
period, referring to the expiration and settlement of June
stock and index futures and options, which may increase
volatility. The CBOE Volatility Index .VIX was down 4.8
percent, but slightly above the psychologically important 30
level.

On the downside, Caterpillar Inc (CAT.N) shed 2.1 percent
to $34.08 after the heavy machinery maker said its retail
sales of machines had fallen at a faster pace in May. The
stock was the Dow's biggest drag. [ID:nN18388033]

Government data showed that while the amount of workers
filing new claims for jobless benefits rose last week, the
number of people collecting aid after the initial week marked
its biggest decline since November 2001.

Though regional manufacturing contracted in June, it was
far less severe than the previous month, adding to
stabilization hopes.

After a nearly 4 percent pullback over the past three
sessions, the broad S&P 500 is up 35.7 percent from its
12-year closing low on March 9.
(Editing by Jan Paschal)