Stocks drifted higher Thursday, extending the previous session’s big gains, one day before the U.S. government releases its monthly report on jobs and unemployment.

The Dow Jones industrial average was up 14 points, or 0.1%, with about one hour left in the session. The S&P 500 gained 5 points, or 0.5%, and the Nasdaq composite rose 14 points, or 0.6%.

Stocks were supported by better-than-expected sales from major U.S. retailers, an increase in pending home sales and a modest dip in initial claims for unemployment benefits. But the tone was relatively subdued following Wednesday’s big rally and ahead of the government’s monthly jobs report on Friday.

“The market is holding its own,” said Peter Cardillo, chief market economist at Avalon Partners. “The fact that we’re holding yesterday’s gains is a good indication that we could rally after Labor Day if the jobs report is within expectations.”

The labor market has been a major source of worry on Wall Street. Consumer spending, which drives the bulk of U.S. economic activity, is closely linked to unemployment.

In particular, investors are eager to see signs that private sector employers could begin hiring again as public sector jobs related to the Census have disappeared.

“It all depends how bad that services number is,” said Cardillo, adding that the market is expecting the report to be negative.

Meanwhile, trading volumes continued to be light as many market participants are on vacation this week. On the New York Stock Exchange, just under 600 million shares traded hands.

American Express led decliners on the Dow, while Boeing and Home Depot made decent headway. Nearly half of the 30 stocks in the blue-chip average were lower.

After closing out a dismal August, stocks rallied more than 2% on Wednesday to start September on a strong note. But the market is still down between 1.6% and 3.6% year to date.

Retail: A majority of retailers reported surprisingly strong August same-store sales, as consumers responded to back-to-school deals and tax holidays. Same-store sales, an important gauge of a retailer’s health, measure sales at stores open at least a year.

Sales tracker Thomson Reuters said 65% of the retailers in its index, that have reported sales so far, have beat expectations.

Shares of major retailers were higher in early trading. JC Penny, Macy’s and Nordstrom led the charge.

Economy: Weekly jobless claim figures dipped slightly, by 6,000 claims, to 472,000 in the week ended Aug. 28. Economists expected the number of Americans filing new claims for unemployment insurance to have edged up slightly last week to 475,000.

Continuing claims, a measure of Americans who have been receiving benefits for a week or more, dropped to 4.456 million in the week ended Aug. 21, down 23,000 from the previous week.

Pending home sales — a forward looking gauge — rose 5.2% in July, according to an index from the National Association of Realtors. But the index, which is based on contracts signed in the month, was down over 19% from July 2009.

Economists surveyed by Briefing.com had expected pending home sales would be flat in July, according to consensus estimates.

Separately, the government said factory orders rose 0.1% in July, versus a forecasted 0.3% gain. But the Commerce Department said orders fell 0.6% in June, an improvement over the originally reported 1.5% drop.

The Labor Department said labor productivity in the non-farm business sector fell at an annual rate of 1.8% in the second quarter of 2010. The drop came as hours worked increased 3.5%, the largest quarterly gain in over four years, and output rose 1.6%.

The drop in productivity was roughly in line with estimates from private sector economists.

Companies: Shares of Mariner Energy fell 2% after a fire occurred on an oil and gas production platform the company owns in the Gulf of Mexico.

All 13 people onboard the Vermilion 380 have been accounted for, Mariner said. They are currently investigating the causes of the incident. The company said an initial flyover found no indication that oil or gas had leaked as a result of the fire.

Burger King said Thursday that it has agreed to be acquired by investment firm 3G Capital in a deal valued at $4 billion. Shares of the fast-food company rose 24% after surging 14% in the previous session on rumors of the deal.

HP raised its offer to buy data storage company 3PAR to $33 per share, topping a $32 bid from Dell. The computer makers have been engaged in a bidding war for 3PAR since Dell made an $18 per share offer on Aug. 16. World markets: European shares were essentially flat. The CAC 40 in France gained 0.2%, while Britain’s FTSE 100 and the DAX in Germany were both little changed.

Asian markets closed higher. Japan’s benchmark Nikkei index added 1.5%. The Shanghai Composite rose 1.3%, and the Hang Seng in Hong Kong gained 1.2%. Currencies and commodities: The dollar slipped against the euro and the Japanese yen, but edged higher versus the British pound.

Oil futures for October delivery fell 43 cents to $74.35 a barrel. Gold for December delivery added $6.20 to $1,252.50 an ounce. Bonds: The yield on the 10-year Treasury note rose to 2.61% from 2.58% late Wednesday.

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