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Stocks held near session highs on the first trading day of August as Wall Street cheered a round of upbeat economic data, propelling the S&P 500 above the 1,700 mark for the first time.

"The rising asset prices will help instill confidence and that will breed more confidence," said Matthew Kaufler, portfolio manager of the Clover Value Fund at Federated. "However, we've had a great run in the market and at some point there will be a correction in the near point . . . still, my sense would be that there's enough momentum that we'll end the year up a few percentage points higher than where we currently are."

Major averages also closed out their best July since 2010 on Wednesday. So far this year, the Dow ($INDU) and S&P 500 ($SPX) have spiked more than 19%, while the Nasdaq ($@CCO) has surged an impressive 21%.

The Dow Jones Industrial Average spiked nearly 150 pionts, led by Bank of America (BAC) and P&G (PG). ExxonMobil (XOM) was the only Dow component in the red.

The S&P 500 and the Nasdaq rallied 1% each. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, slid below 13.

All key S&P sectors were in positive territory, led by financials and materials.

On the economic front, weekly jobless claims tumbled 19,000 to a seasonally adjusted 326,000, dropping to a 5-1/2 year low, according to the Labor Department. Economists surveyed by Reuters expected a reading of 345,000, compared with 343,000 in the prior week. And the number of planned layoffs at U.S. firms declined modestly in July, with employers announcing 37,701 cuts last month, down 4.2% from 39,372 in June, according to the report from consultants Challenger, Gray & Christmas.

The reports came ahead of Friday's widely-watched government job report. Analysts polled by Reuters expect to see a gain of 184,000 in July, after a 195,000 uptick in the previous month.

In another positive sign, the pace of growth in the U.S. manufacturing sector accelerated in July to the highest level since June 2011 as new orders surged, according to the Institute for Supply Management.

However, construction spending unexpectedly declined 0.6 percent in June to an annual rate of $884 billion, according to the Commerce Department, the biggest decline since January. Economists polled by Reuters had expected a gain of 0.4 percent.

Stocks ended flat on Wednesday after the Federal Reserve did not signal when it would start tapering its bond-buying program. However, it did raise concerns about rising mortgage rates and flagged the risks of inflation falling too far below its target. In addition, the central bank slightly downgraded its outlook for economic growth.

Asian stocks rallied after China's official PMI (purchasing manager's index) data showed the country's manufacturing sector continued to expand in July, defying forecasts of a contraction. But the picture was mixed, with a private gauge of factory activity by HSBC showing an 11-month low of 47.7 in July. Japan's Nikkei rallied to a one-month peak on the news, the Shanghai Composite hit a one-week high and South Korea's Kospi touched a seven-week high.

"Official PMI is more skewed to larger companies, and the HSBC figure reflects the smaller companies and that is where you get this divergence," said Frederic Neumann, co-head of Asian economics research at HSBC.

In Europe, the European Central Bank kept its main interest rate unchanged at a record low of 0.5%, and reiterated that rates would remain at present or lower levels for an extended period of time.

"Labor market conditions remain weak. Looking ahead to the remainder of the year and 2014, euro area growth should benefit from a gradual recovery in global demand," said ECB president Mario Draghi in a press conference following the announcement. "Our monetary policy stance remains accommodative for as long as necessary. We have unanimously confirmed the forward guidance we gave last time."

Euro zone manufacturing activity grew for the first time in two years in July, with the purchasing manager's index (PMI) climbing to 50.3 in July. A reading above 50 indicates an expansion.

And the Bank of England left its interest rates unchanged at 0.5%, as expected, under its new governor, Mark Carney.

The second-quarter earnings parade continued with Dow component Procter & Gamble topping Wall Street expectations.

However, fellow Dow component Exxon Mobil traded lower after the oil giant posted a profit that badly missed forecasts as oil and gas output dropped and earnings for its refining business fell. Meanwhile, rival ConocoPhillips (COP) rose after the company posted better-thane-expected earnings and lifted its full-year production forecast.

Royal Dutch Shell slumped after the oil company reported a sharp drop in earnings as it suffered from attacks on its operations in Nigeria.

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AIG (AIG), Kraft Foods (KRFT) and LinkedIn (LNKD) are among notable companies scheduled to post results after the closing bell.

Automakers including General Motors (GM), Ford (F) and Toyota are slated to posts monthly sales figures throughout the day.

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