NEW YORK - Improved prospects for job growth and better news on home sales sent stocks higher on Wall Street on Thursday.

The Dow Jones industrial average rose 135 points, nearly making up its 140-point loss of the day before. The S&P 500 edged back into the black for 2011, with one more day of trading left in the year.

Driving the gains was news that the four-week average for unemployment claims had fallen to a 3 1/2-year low, an indication that hiring could pick up. Also, the number of Americans who signed contracts to buy homes in November rose more than 7 percent, to the highest level in a year and a half, the National Association of Realtors reported.

Quincy Krosby, Prudential Financial's market strategist, said the reports were encouraging signals for the economy going into 2012.

"The correlation between jobs and housing has been crystal-clear this year," Krosby said. "Parts of the country where jobs are more plentiful are the ones where the housing market has held up."

Krosby said the correlation had become more pronounced in the wake of the real estate bust, with lenders reluctant to even consider prospective buyers for mortgages unless they have jobs. It's a noticeable trend in many cities, she said.

Weekly applications for unemployment benefits increased by 15,000 to a seasonally adjusted 381,000, the Labor Department said Thursday. The four-week average, a less volatile measure, dropped for the fourth straight week to 375,000 - the lowest since June 2008.

"Despite the rise in the weekly claims data, the longer-term trend ... suggests that the recovery in the labor market is maintaining its momentum," Michael Gapen, an economist at Barclays Capital, said in a note to clients. Applications generally must fall below 375,000 consistently to signal that hiring is strong enough to reduce the unemployment rate.

The positive housing news sent stocks of home builders sharply higher. Masco Corp. soared 8.4 percent, the most in the S&P 500. PulteGroup Inc. rose 6 percent, and Lennar Corp. gained 4.6 percent.

The Dow closed at 12,287.04, a gain of 135.63 points, or 1.12 percent. For the year, the Dow is up 709 points, or 6 percent.

The S&P 500 rose 13.38 points, or 1.07 percent, to 1,263.02, just five points above where it started the year.

The technology-heavy Nasdaq composite rose 23.76 points, or 0.92 percent, to 2,613.74. The index is down 39 points for the year.

Trading was light Thursday as investors got ready to close the books on 2011. Volume on the New York Stock Exchange was two billion shares, less than half its recent average.

Chesapeake Midstream Partners rose 5 percent after the natural gas systems operator agreed to acquire Chesapeake Energy Corp.'s pipeline business.

Hill International Inc. rose 3 percent after the construction-management company was awarded a $3.3 million contract to build a stadium in Iraq.

Sears Holdings Corp. fell 1 percent as investors worried over the fate of the retailer two days after it said it would close 100 to 120 Sears and Kmart stores nationwide.