* Defensive stocks lead way up in choppy trading
* Goldman Sachs falls after downgrade
* Indexes up: Dow 0.5 pct, S&P 0.5 pct, Nasdaq 0.6 pct
* For up-to-the-minute market news see [STXNEWS/US] (Updates with volume, silver ETF inflows, Nordstrom shares down)
By Caroline Valetkevitch
NEW YORK, May 12 (Reuters) - Defensive shares led a rebound in U.S. stocks on Thursday as investors weighed mixed economic signals and recent volatility in commodities as they searched for direction.
The Dow industrials fell nearly 100 points in the morning but recovered later after a lackluster auction of 30-year U.S. bonds and headlines suggesting negotiations to raise the U.S. debt ceiling had intensified.
The strong performance by defensive shares, such as health care and consumer staples, suggested investors were still attracted to stocks while other asset classes made them more nervous.
"Fixed income investments don't seem very attractive at the current yield. There's some concern about commodities. The volatility has scared a lot of people away, so I think a lot of investors are sitting back and saying, 'Where can I put my money?' and the stock market is that," said Channing Smith, co-manager of the Capital Advisors Growth Fund in Tulsa, Oklahoma.
The Dow Jones industrial average <.DJI> was up 65.89 points, or 0.52 percent, at 12,695.92. The Standard & Poor's 500 Index <.SPX> was up 6.57 points, or 0.49 percent, at 1,348.65. The Nasdaq Composite Index <.IXIC> was up 17.98 points, or 0.63 percent, at 2,863.04.
YIELDS UNATTRACTIVE
Bond yields have been declining, making them less attractive compared with stocks, particularly those that pay dividends such as utilities. The S&P utility index <.GSPU> rose 0.9 percent on Thursday and has gained 5.8 percent since April 8 when the recent decline in bond yields began.
Commodities have been under pressure in recent sessions, although oil ended the day higher.
Defensive stocks typically have more predictable revenues, which makes them attractive during volatile markets.
The iShares Silver Trust exchange-traded fund
Total assets in the fund fell, however, to $13.25 billion from $13.30 billion as the week's net inflows were more than offset by $368.9 million in declines due to market performance.
The silver ETF has been among the biggest stock market losers in the recent commodities rout. The ETF fell 3.1 percent on Thursday and 29 percent since the start of the month.
DEFENSIVE SHARES GAIN
S&P consumer staples <.GSPS> rose 1.3 percent, while the S&P health care index <.GSPA> gained 0.9 percent. Many defensive shares have been on an upward trajectory since about mid-March.
Shares of Merck & Co
The market ended down on Wednesday after another sell-off in commodities.
U.S. data showed the economy struggling to gain traction. Jobless benefit claims declined last week but retail sales posted their smallest rise in nine months in April. For reactions to data see [ID:nN12292551].
Financial shares fell after Rochdale Securities banking
analyst Dick Bove put a "sell" rating on Goldman Sachs Group
Goldman shares slumped 3.5 percent to $142.75 and volume topped the 50-day moving average. The KBW bank index <.BKX> was down 0.2 percent.
Cisco Systems Inc
After the closing bell, shares of Nordstrom
About 7.5 billion shares were traded on the New York Stock Exchange, NYSE Amex and Nasdaq, compared with the average of 7.73 billion so far in 2011.
Advancing stocks outnumbered declining ones on the NYSE by about 19 to 11 and on the Nasdaq by a ratio of almost 2 to 1. (Reporting by Caroline Valetkevitch; Additional reporting by Dan Burns, Editing by Kenneth Barry)