NEW YORK (REUTERS) - United States (US) stocks closed modestly higher on Thursday, with the Dow ending at a record for a third straight day as jobless claims data pointed to a pick-up in the labour market's recovery a day before the closely watched payrolls report.

The Dow and the S&P 500 were both up for their fifth straight days as investors looked for opportunities to buy into the recent rally.

However, caution ahead of the jobs report curbed gains and kept the S&P more than 1 per cent below its record close.

"Today's move is pretty tranquil. No one is going to take big positions ahead of tomorrow's number, but the market is definitely in an uptrend," said Mr Paul Zemsky, the New York-based head of asset allocation at ING Investment Management.

Growth-oriented sectors led the day's gains. The S&P financial index added 0.7 per cent and hit an intraday high. Shares of Dow component Bank of America rose 2.9 per cent to $12.26 while JPMorgan Chase & Co added 1.2 per cent to $50.63.

A strengthening economy and loose monetary policy by central banks around the world have pushed US stocks higher this year.

Investors have kept buying into the market since Tuesday's rally, but gains have been more subdued.

Worries remain as Washington debates the path of fiscal policy, the euro zone is not out of its crisis, and US economic growth remains anemic.

However, the latest economic data was encouraging, as the number of Americans filing claims for unemployment benefits unexpectedly fell last week to a seasonally adjusted 340,000. It was the second straight week of declines.

Investors will stay focused on the labor market ahead of Friday's non-farm payrolls report, which is expected to show the US economy added 160,000 jobs in February. While it has been a soft spot in the economic recovery, the labor market is seen as healing slowly.

"If payrolls disappoint, we'll have a pullback, but that won't be enough to derail the rally," said Mr Zemsky, who helps oversee US$170 billion (S$212 billion). "If the report is strong, markets still have room to grow."

The Dow Jones industrial average rose 33.25 points, or 0.23 per cent, to 14,329.49, a record closing high. The Standard & Poor's 500 Index added 2.80 points, or 0.18 per cent, to 1,544.26. The Nasdaq Composite Index gained 9.72 points, or 0.30 per cent, to end at 3,232.09.

During Thursday's session, the Dow climbed as high as 14,354.69 - its third straight intraday record high.

The Dow is up 9.4 per cent so far this year, while the S&P 500 is up 8.3 per cent.

The Russell 2000 Index, which measures the performance of 2,000 US small-cap companies, closed at a record high in Thursday's session, as did the Russell 1000 and the Russell 3000.

In a separate report on Thursday, the Commerce Department said the US international trade deficit widened more than expected in January as crude oil imports rose and fuel oil exports fell. In contrast, the department cut its estimate of the December trade gap.

Shares of network equipment maker Ciena jumped 17.3 per cent to $17.53 after the company reported a smaller quarterly loss.

Retail stocks were among the most active following February same-store sales. Gap Inc jumped 4.1 per cent to $35.87 as its results were stronger than expected, while Zumiez slid 4.8 per cent to $22 on a weak report.

Teen apparel retailer Hot Topic Inc said it will be bought by private equity firm Sycamore Partners for about US$600 million. Shares surged 29 per cent to $13.87.

Time Warner Inc rose 2.4 per cent to $56.78 after the company said it would spin off its magazine unit, ending weeks of merger talks with Meredith Corp. Meredith fell 6.2 per cent to $37.82.

On the down side, shares of PetSmart fell 6.6 per cent to $62.18 after the company's full-year profit forecast missed analysts' estimates. At least two brokerages cut their price targets on the retailer's stock.

About 56 per cent of stocks traded on the New York Stock Exchange closed higher, while 58 per cent of Nasdaq-listed shares ended in positive territory.

Volume was light, with about 6.1 billion shares changing hands on the New York Stock Exchange, the Nasdaq and NYSE MKT, below the daily average so far this year of about 6.48 billion shares.