The euro (CUR_EURUSD 1.2902, +0.0156, +1.2233%) rose to buy $1.2907, up from $1.2764 Wednesday. The euro gained 1.4% versus the Japanese yen (CUR_EURYEN 112.2600, +1.4100, +1.2720%) at ¥112.45. U.S. stocks rallied sharply, with the Dow Jones Industrial Average (DJIA 10,316, +195.79, +1.94%) up 2.1% or 194 points, as investors embraced a slate of stronger corporate earnings. The dollar added to losses after the National Association of Realtors said resales of U.S. homes fell 5.1% in June, far less than the 10% forecast by economists polled by MarketWatch. See story on home sales. The dollar showed little reaction to an early U.S. report showing jobless claims rose in the latest week. Read about jobless claims. "These data points show the economy is in the process of reversing direction after three quarters of recovery," said Steven Ricchiuto, chief economist at Mizuho Securities. The move represents a shift from Wednesday, when the greenback had advanced against most major currencies and stocks plunged after Federal Reserve Chairman Ben Bernanke focused his comments on the economy's problems. He underlined the Fed's willingness to take action to further loosen monetary policy if needed, but declined to elaborate any specific new actions to spur growth, contrary to some expectations. Read about Bernanke's testimony. "Bernanke clearly disappointed market expectations," said Aroop Chaterjee, a currency strategist at Barclays Capital. "The lack of focus on further policy loosening, coupled with Bernanke's comments about the uncertain outlook and sovereign concerns in Europe, led to a sell-off in risk as equities and risky currencies fell, in addition to another leg higher in U.S. fixed income and a rally in the U.S. dollar." Euro data, stress tests The euro had risen earlier after the preliminary July Markit euro-zone composite purchasing managers' index unexpectedly rose to a three-month high. Read about euro-zone data. Separately, statistics agency Eurostat reported a surprisingly strong 0.8% rise in euro-zone May industrial orders. Economists had forecast a flat reading. "The biggest data point overnight was the euro-zone PMI, which was better than expected. ... As such, one must wonder whether the initial shock related to the [sovereign-debt] concerns in Europe has receded somewhat," said Dan Greenhaus, chief economic strategist at Miller Tabak & Co. in New York. While it's too early to say all is well, "the better-than-expected reading in July is a most encouraging turn of events, even if it lasts for a brief period of time," he said. Uncertainty over the methodology and rigor of the tests leaves the euro and European markets open to disappointment, analysts warned. Read about market fears surrounding the tests. "While the euro may rise further near-term on the impression that most banks have probably passed, this factor may return to undermine the euro if the credibility of the tests cannot be proved," said Jane Foley, research director at Forex.com. "Medium-term, the potential headwinds facing the euro zone are such that we remain unconvinced that the euro's fortunes have turned versus the U.S. dollar. " The dollar fell against the Japanese yen (CUR_USDYEN 87.0200, +0.0900, +0.1035%) to buy ¥87.09, compared with ¥87.11 late Wednesday. The British pound (CUR_GBPUSD 1.5265, +0.0089, +0.5865%) rose to $1.5268 from $1.5167 late Wednesday. Sterling added to gains after data showed a stronger-than-expected rise in June retail sales, which were attributed in part to the World Cup.

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