Oil prices set another trading record overnight _ moving above $135 per barrel for the first time _ then pulled back, offering some relief for investors. And the Labor Department said the number of workers seeking unemployment benefits declined by 9,000 last week to 365,000. The market expected a slight increase.

But the economic fallout from ascendent energy prices remained Wall Street's focus.

"People are concerned about the economy and what's happening with oil," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group in New York, referring to the advance in stocks.

He predicts markets will remain jittery and says thin trading indicates the gains are coming without much conviction.

"While the market is higher today we're not seeing overall broad buying and we're not seeing a lot of volume."

The modest rise in stocks followed a decline in the Dow Jones industrial average that totaled about 427 points, or 3.3 percent, over the course of Tuesday and Wednesday. It was the steepest two-day loss since late February. Stocks have declined in three of the past four sessions.

In early afternoon trading, the Dow rose 42.42, or 0.34 percent, to 12,643.61.

Broader stock indicators also moved higher. The Standard & Poor's 500 index rose 4.94, or 0.36 percent, to 1,395.65, and the Nasdaq composite index rose 21.95, or 0.90 percent, to 2,470.22.

Even with the declines of more than 2 percent in the major indexes this week, stocks are still well off their mid-March lows. The Dow is about 7 percent above its close of 11,740.15 on March 10, when investors were preoccupied with worries over the soundness of the credit markets. Since then, Wall Street has reshuffled its list of concerns, placing greater emphasis on the well-being of the overall economy, not just the troubled financial sector.

Bond prices fell sharply Thursday. The yield on the benchmark 10-year Treasury note rose to 3.94 percent from 3.81 percent late Wednesday.

Light, sweet crude fell $1.49 to $131.68 a barrel on the New York Mercantile Exchange. Earlier, oil topped $135.

The spike in oil prices has fanned investors' uneasiness about inflation. One big fear is that consumers worried about rising prices for everything from gasoline to food will be less willing to reach into their wallet for other items. A pullback could deal a major blow to the economy as consumer spending accounts for more than two-thirds of U.S. economic activity. And rising oil drives up transportation costs and many other expenses for businesses that aren't directly dependent on consumers.

The dollar was mixed against other major currencies, while gold prices fell.

In corporate news, Ford Motor Co. warned that it no longer expects to return to profitability by next year and that it is trimming North American production of pickups and SUVs for the rest of this year because of high gas prices and a shaky economy. The automaker also lowered its forecasts for U.S. sales for 2008. Ford fell 70 cents, or 9 percent, to $7.10.

Power wholesaler NRG Energy Inc. said it offered to acquire rival Calpine Corp. for about $11.3 billion in stock. Calpine, which has dual headquarters in San Jose, Calif., and Houston, released details of the unsolicited bid Wednesday. NRG fell $1.91, or 4.5 percent, to $40.60, while Calpine jumped $1.40, or 6.6 percent, to $22.68.

Advancing issues outnumbered decliners by about 4 to 3 on the New York Stock Exchange, where volume came to 614.3 million shares.

The Russell 2000 index of smaller companies rose 6.36, or 0.87 percent, to 733.47.

Overseas, Japan's Nikkei stock average rose 0.37 percent. Britain's FTSE 100 fell 0.27 percent, Germany's DAX index rose 0.42 percent, and France's CAC-40 advanced 0.02 percent.

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