A sharp rally in the dollar relented on Thursday, helping push the stock market to its best day in five weeks.
The U.S. currency dropped for the first day in nine against the euro after a weak retail sales report raised questions about the strength of the economy.
A jump in the dollar since the start of the month has pushed stocks back from record levels. Investors are worried that the stronger U.S. currency could crimp corporate earnings by hurting overseas sales. About half of the revenue generated by companies in the Standard & Poor's 500 index comes from overseas.
Financial stocks were among the biggest gainers after a number of banks got approval from the Federal Reserve to raise dividends and buy back shares. Intel was one of the days' biggest losers after the company cut its revenue forecast for the first quarter.
"It's the pullback in the dollar that's cheering investors," said Peter Cardillo, chief market economist at Rockwell Global Capital. "The frenzy that we saw in the foreign exchange markets has, at least for today, calmed down."
The Standard & Poor's 500 index climbed 25.71 points, or 1.3 percent, to 2,065.95. The best performance for the index since Feb. 3.
The Dow Jones industrial gained 259.83 points, or 1.5 percent, to 17,895.22. The Nasdaq composite climbed 43.55 points, or 0.9 percent, to 4,893.29.
Stocks have slumped since the start of the month on speculation that the Federal Reserve could raise its benchmark interest rate in June as hiring continues to improve. Policy makers have held their main rate close to zero for more than six years to help the economy recover from the Great Recession.
Thursday's slide in the dollar and the positive news on the banks more than outweighed a government report that showed retail sales were sluggish in February. The ongoing weakness is raising concerns about the strength of the economy.
Retail sales remain poor despite a big drop in gas prices last year. U.S. retail sales fell in February as auto purchases dropped by the most in more than a year and Americans spent less at restaurants and home improvement stores. Retail sales fell 0.6 percent last month after a 0.8 percent decline in January, the Commerce Department said Thursday. It was the third straight drop.
Many investors think it's only a matter of time before consumers start to spend again, particularly if gas prices stay low and wages start to rise.
"We're still set up for a good back-half of the year," said Michael Scanlon, a senior investment analyst at John Hancock Asset Management. "People are going to start spending that money that they are saving on fuel ... and we're definitely seeing green shoots of wage inflation."
Among individual stocks, Intel was the biggest decliner in the S&P 500.
Intel cut its revenue forecast for the first quarter to $12.5 billion to $13.1 billion. The company cited weak demand for business desktop PCs and a strong dollar, which diminished revenue from overseas sales. Intel's stock slumped $1.53, or 4.7 percent, to $30.80.
Morgan Stanley was the biggest gainer in the index.
The bank and other financial stocks gained after the Fed approved their plans to raise dividends and buy back shares. The announcements follow regulatory tests that assess whether lenders have adequate reserves to withstand a major economic downturn.
Morgan Stanley gained $2.14, or 6.1 percent, to $37.09 after announcing a $3.1 billion stock buyback and raising its dividend to 15 cents from 10 cents.
Citigroup was another big gainer. Its stock rose $1.75, or 3.3 percent, to $54.08 after the bank announced late Wednesday that it would buy back $7.8 billion in stock and raise its quarterly dividend to 5 cents from 1 cent.
While the Fed appears to be edging closer to raising rates, the European Central Bank and the Bank of Japan are still trying to stimulate their economies by lowering borrowing costs. The divergent policies have pushed the dollar sharply higher against most other major currencies.
In the short term, investors worry that the stronger dollar will act as a drag on profits for global companies that rely on overseas sales for a large portion of their revenue.
On the Thursday, the U.S. currency pared some of its gains.
The euro appreciated 0.5 percent against the dollar and was trading at $1.0635. The dollar also lost ground against the Japanese yen, falling to 121.29 yen.
U.S. government bond prices were little changed from Wednesday. The yield on the benchmark 10-year Treasury note held steady at 2.11 percent.
In metals trading, gold gained $1.30, or 0.1 percent, to $1,151.90 an ounce. Silver rose 15 cents, or 1 percent, to $15.52 an ounce. Copper gained 5.3 cents, or 2 percent, to $2.66 per pound.
The price of oil fell for the fifth time in 6 days on continuing concerns about rising supplies in the U.S. and around the world. Benchmark U.S. crude fell $1.12 to close at $47.05 a barrel in New York. Brent crude, a benchmark for international oils used by many U.S. refineries, fell 46 cents to close at $57.08 in London.
In other futures trading on the NYMEX:
Wholesale gasoline rose 1.6 cent to close at $1.810 a gallon.
Heating oil rose 4.1 cent to close at $1.779 a gallon.
Natural gas fell 9 cents to close at $2.734 per 1,000 cubic feet.