NEW YORK - The stock market continued its upward climb Thursday as traders went back to work after the Christmas holiday, adding to what has already been a historic year for the market.

Traders were encouraged by an unexpectedly large drop in claims for unemployment benefits last week, the latest sign that the U.S. job market is improving.

The Labor Department said the number of Americans who filed for unemployment benefits fell 42,000 last week to 338,000. The drop was far bigger than economists were expecting and an indication that fewer people were losing their jobs.

The Dow Jones industrial average rose 122.33 points, or 0.75 percent, to 16,479.88. It was the 50th record-high close for the Dow this year. The index is up 25.8 percent so far in 2013, on pace to have its best year since 1996.

The Standard & Poor's 500 index rose 8.70 points, or 0.47 percent, to 1,842.02.

The Nasdaq composite was up 11.76 points, or 0.28 percent, to 4,167.18.

With Thursday's gains, the S&P 500 is up 29.2 percent for the year, or 31.3 percent when dividends are included. It's on track for its best year since 1997.

The yield on the 10-year Treasury note, a benchmark for many kinds of loans, briefly crossed above the psychologically important 3 percent mark. It hasn't been that high since September.

Bond prices fell, pushing the yield on the 10-year Treasury note to 2.99 percent, from 2.98 percent Tuesday.

Yields have been climbing since late November, as economic reports have suggested that the U.S. recovery is gaining momentum. The increase accelerated last week after the Federal Reserve announced it was cutting back on bond-buying. The yield last touched 3 percent in September, a level it has not been consistently above since July 2011.

"There's a silver lining to see bond yields rise like this, because it's a sign that the economy is getting stronger," said John De Clue, chief investment officer of U.S. Bank Wealth Management.

Yields on Treasury securities like the 10-year note are used to calculate interest rates on student loans, mortgage rates, credit cards, and many other kinds of debt. As the 10-year yield has risen in the last six months, so have mortgage rates.

In early May, the average mortgage rate was about 3.35 percent. This week, it was 4.48 percent, Freddie Mac reported.

In corporate news, T-Mobile shares rose 74 cents, or 2.3 percent, to $32.93 after media reports that Sprint division of Japan's Softbank was looking to buy the wireless carrier.

Twitter rose $3.35, or 5 percent, to $72.31.