US STOCKS-Deal news, data produce modest rebound

(Updates to early morning)

By Jennifer Coogan

NEW YORK, May 22 (Reuters) - U.S. stocks managed a modest rebound on Thursday from two days of steep declines, lifted by a proposed major acquisition in the utilities sector and an indication of strength in the jobs market.

Financial stocks snapped back after suffering their biggest drop in a month on Wednesday. Banks fell after the Federal Reserve slashed its growth forecasts and hiked its estimates for inflation, creating concern that the Fed is done cutting interest rates.

NRG Energy Inc (NRG.N: Quote, Profile, Research, Stock Buzz) made an unsolicited bid to buy competitor Calpine Corp (CPN.N: Quote, Profile, Research, Stock Buzz) for about $11 billion in stock, the companies said late on Wednesday. For details, see [ID:nN21395350].

Adding to Wall Street's optimism, the Labor Department reported weekly jobless claims unexpectedly fell by 9,000 to the lowest level in a month.

Despite the positive news, investors were still edgy over the price of oil after it set all-time highs for a third consecutive day on Thursday, surpassing $135 a barrel.

"It's been so encouraging that the market's done reasonably well since mid-March when the Fed broke the log-jam in the credit markets," said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

"But it's very hard to make the case that with oil at $135 a barrel, it's not going to have a significant impact on the U.S. economy. That has to raise lots of worries among investors who care so much about the economy and earnings."