The financial sector was higher early Thursday as a rebound in Chinese stocks and analyst upgrades helped offset a disappointing jobs report.

The Financial Select Sector SPDR Fund, a barometer of financial shares, gained nearly 2% in morning trade after closing flat on Wednesday.

Markets were encouraged by a recovery in China's volatile stock market and seemed to shrug off a Labor Depart report showing a surprising jump in initial claims for state unemployment benefits.

Insurance giant American International Group Inc. was a notable mover as the stock rose more than 10%. The troubled company announced a management shuffle on Thursday.

Some financial stocks were moving Thursday on ratings changes from Wall Street analysts.

Shares of Prudential Financial Inc. gained 4% after FBR Capital Markets raised the stock to outperform from market perform, citing the company's relative credit strength.

Similarly, Allied Capital Corp. was higher as Keefe, Bruyette & Woods upgraded the shares following the company's second-quarter earnings announcement. "We are upgrading shares of Allied Capital to market perform from underperform, given the stabilization in the credit markets as well as the fact that the company has reached a preliminary debt restructuring plan with its lenders and private noteholders," KBW said.

Conversely, Lazard Ltd. shares fell after Fox-Pitt Kelton analysts cut the stock to in line from outperform, citing valuation concerns.

In other ratings action, Deutsche Bank analyst Matt O'Connor downgraded shares of Regional Financial Corp. to hold from buy on Thursday. The decision was driven by the stock's recent rally and a forecast that banks will feel more pain from construction and real estate loans.

"We continue to believe commercial real estate-related losses will be much higher than the market expects for banks overall," O'Connor wrote in a research note. Shares of Regions are up 44% since late May and are outperforming regional-banking peers by a wide margin, he said.

E-Trade Financial Corp. were higher in recent trade after the online broker said it will exchange about $1.74 billion in notes as part of its recently expired exchange offer. The company is trying to shore up its balance sheet, which was hit by losses in its bank's mortgage portfolio.

Separately, the average 30-year, fixed-rate mortgage fell 15 basis points to 5.52% this week, the lowest level since Memorial Day, according to Bankrate.com.

"A renewed bout of economic uncertainty brought mortgage rates to the lowest level since late May. Skepticism about the sustainability of an economic rebound with the American consumer ailing led investors to pull money out of stocks and park it in the safety of government bonds," said Bankrate.com, adding that mortgage rates are closely linked to yields on long-term government bonds.

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