In the U.S., industrial production fell 0.7% in April, undershooting the -0.3% expected, while capacity utilization fell to its lowest level since Hurricane Katrina in 2005. Initial jobless claims for the week ending May 10 were virtually in line at 371k, but continuing claims climbed to their highest level since 2004. The Empire State manufacturing survey declined to a level of -3.2 in May against a consensus estimate of 0.0.

Colin Cieszynski, market analyst from CMC Markets Canada, said the resilience in equities is a positive sign. "Despite these numbers, each of which could have sparked profit-taking in the markets, equities have been steady, suggesting that investor sentiment seems to still be reasonably supportive," Cieszynski said.

The Dow Jones industrial average closed up 94 points to 12992, the S&P 500 up 14 points to 1423 and the Nasdaq up 37 points to 2533.

Federal Reserve Chairman Ben Bernanke delivered a speech on risk management in financial institutions and strongly urged firms to improve capital ratio, but his comments gave little direction to markets.

Treasury and foreign exchange markets noted U.S. total net TIC flows, which declined $48.2 billion against an expected increase of $67.5 billion. The knee-jerk reaction was to buy the short end and sell the U.S. dollar, but T.J. Marta, fixed income strategist at RBC Capital Markets, said other reports were garnering more of the market's attention.

"Empire and industrial production seem to be the two releases that stand out. It's hard to get a worse print than -0.7% [for industrial production]. It really points to a soft economy."

U.S. two-year yields are down 6.6 bps to 2.45%, with five-year yields down 8.6 bps to 3.11%, 10-year yields down 6.8 bps to 3.84% and 30-year yields down 4.0 bps to 4.57%. The Eurodollar September 08 contract is up 12.5 ticks to 97.24. The yield curve is flatter, with the 10/2-year spread down 0.3 bps to 139.90 bps.

The sole Canadian economic data point showed a sharp fall in Canadian manufacturing shipments. In March, shipments declined 1.6% against expectations for a 0.4% fall. The report sparked a bid in Canadian government bonds but only momentarily stalled the Canadian dollar rally.

Yields on two-year Canadian government bonds are down 4.5 bps to 2.78%, with five-year yields down 3.2 bps to 3.15%, 10-year yields down 3.3 bps to 3.57% and 30-year yields down 1.0 bps to 4.05%. The Canadian 10-year note is yielding 27.37 bps less than the U.S. 10-year note.

Toronto's S&P/TSX composite index closed up 196 points to 14823.

The Canadian dollar was stronger overnight, trading in a choppy range. It hit parity for the third straight day, reaching a high of 1.0006 USD.

The loonie is up 0.0031 to 0.9994 against the U.S. dollar (1.0007 USD/CAD) and down 0.05 to 104.59 against the yen.

The U.S. dollar is down 0.36 to 104.68 against the yen and the Dollar Index is up 0.077 to 73.387.

The euro got a boost from preliminary first-quarter German GDP, which was up 1.5% against the expected 0.7%. The euro climbed to a session high of 1.5546 immediately following the release but later faded along with oil prices.

After the GDP report and similarly strong reports on French GDP and euro zone GDP, yields on two-year German notes trended higher to 4.01% from 3.91% and 10-year note yields similarly increased to 4.27% from 4.18%. The Eurostoxx opened down 0.9% despite the strong German growth figure before paring its losses.

The euro is down 0.0015 to 1.5458 against the U.S. dollar, down 0.0061 to 1.5470 against the Canadian dollar, down 0.0012 to 0.7940 against the pound sterling and is lower by 0.72 to 161.82 against the yen.

The pound sterling is up 0.0011 to 1.9470 against the U.S. dollar and down 0.0049 to 1.9483 against the Canadian dollar.

Nymex crude oil rallied into positive territory and a session high of $126.64 after news that Nigerian rebels attacked a pipeline in Nigeria, but a later round of profit-taking hit the market and prices fell to $120.75. At the end of the session, prices were relatively unchanged.

Friday features Canadian new motor vehicle sales for March, U.S. housing starts for April and the May preliminary Reuters/University of Michigan consumer sentiment report.

All data taken at 3:15 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Nancy Girgis, This email address is being protected from spam bots, you need Javascript enabled to view it