U.S. stocks broke out to their first noteworthy gains of the week Thursday, after a closely watched reading on the economy blew away expectations.

The Philly Fed index came in at -2.2 for June, far better than the -17 anticipated and a sign that business conditions in the region are at their best levels since September 2008. Combined with the morning’s weekly unemployment tally from the Labor Department, which showed the number of continuing claims fell to its lowest level since early January, the report helped Wall Street inch out to moderate gains.

By midday, the Dow Jones industrial average was up 70 points, or 0.8%, to 8,567; and the S&P 500 gained 8 points, or 0.8%, to 918. The Nasdaq trailed its fellow indexes, losing 2 points, or 0.1%, to 1,806.

While the Philly Fed reading helped boost the Street, there were also reminders that the economy has plenty of healing to do. Caterpillar said retail sales of its machinery were down 57% in the U.S. during the March-May period, and 33% worldwide. Shares of the construction equipment manufacturer were down 76 cents, or 2.2%, to $34.04.

Treasury Secretary Tim Geithner was grilled by lawmakers on the White House proposal to overhaul the regulatory framework in the U.S. and install the Federal Reserve as a grand overseer charged with monitoring major firms that could pose a systemic risk. Financial stocks were mixed during the testimony, as investors pondered the implications of heightened scrutiny on their business. General Electric. for one, does not currently fall under the jurisdiction of bank regulators but the size of its GE Capital unit will likely bring it under the Fed’s umbrella under the new regime. Shares of GE were down 21 cents, or 1.7%, to $11.94.

Geithner said there are signs of a financial recovery in a Q&A session with the Senate Banking Committee, just a few days after 10 major banks repaid $68 billion in TARP loans. The SPDR KBW Bank exchange-traded fund, which had a hard time mustering an advance earlier, was up 48 cents, or 2.7%, to $18.20 at midday.

Shares of Sallie Mae gained 39 cents, or 5.1%, to $8.08, after the government said late Wednesday that the student lender was among four winners of a contract to service a $550 billion portfolio of loans owned by the U.S. Department of Education. Smaller rival Nelnet. which also got a piece of the contract, soared $1.85, or 22.7%, to $9.99.