NEW YORK (Dow Jones)–U.S. stocks surged in Thursday morning trading, as investors eyeing a rare dose of encouraging employment data and stronger revenue at Cisco Systems took back some of the ground lost in the recent stock-market swoon.

The blue-chip Dow rose 274 points, or 2.6%, to 10996 in late-morning trading. The Dow slumped 520 points Wednesday, the ninth-largest point drop in history, amid mounting worries about the health of Europe’s banks and the chances of a global economic recession.

The Standard & Poor’s 500-stock index jumped 32 points, or 2.8%, to 1152, led by battered financial stocks. The Nasdaq Composite surged 73 points, or 3.1%, to 2454.

Weekly jobless claims data released before the open showed that the number of people claiming new jobless benefits in the U.S. fell slightly last week, a small bright spot in a persistently weak U.S. labor market.

Cisco Systems Inc. also helped set the positive tone. The networking equipment-maker was by far the best-performing blue-chip stock, and surged 17% after posting better-than-expected revenues. The company’s earnings report was viewed as suggesting the company is weathering an uncertain market. Chief executive John Chambers said the company was making “solid progress” on its turnaround effort.

Major indexes were still creaking under the weight of the recent market downdraft. The blue-chip Dow fell nearly 12% for the month as of Wednesday’s close, while the S&P 500 shed 13% and the Nasdaq lost nearly 14% heading into Thursday’s session.

“The tone is certainly emotional and headline-driven,” said Erik Davidson, deputy chief investment officer for Wells Fargo Private Bank. “At some point, rationality will prevail. But the emotions are so high; 2008 is not a distant memory.”

Trading action has been volatile of late as investors sift rumor from fact on European banks and weigh the chances of a global economic recession. The volatility has been accompanied by unusually high volume. As the Dow has swung more than 400 points for three consecutive days, daily volume has been more than twice the 2011 average over recent sessions.

In overnight trading, a cautious tone extended from Europe, where stocks spent much of the session with sharp losses, as concerns swirled about the fate of France’s triple-A rating and the health of that country’s banks.

Citigroup said it “has not cut credit lines to French banks” following a report that Asian banks are reviewing trading and counterparty risks to French banks. Reuters reported that one Singapore bank has already cut credit lines and is assessing trades on a case-by-case basis.

European stocks later turned positive in tandem with the rise in U.S. markets. Asian indexes ended mixed; China’s Shanghai Composite rose 1.3% but Japan’s Nikkei Stock Average shed 0.6%.

In corporate news, AOL Inc. gained 16% after announcing a $250 million stock-repurchase program, while Advance Auto Parts Inc. climbed 8.9% after besting earnings estimates and increasing its share repurchase authorization.

Sara Lee Corp. dropped 2.3% after its fiscal 2012 outlook fell short of estimates.

Casual-dining company Brinker International Inc. jumped 12%. Brinker’s fiscal fourth-quarter results beat expectations and the company gave a positive outlook for the new fiscal year.

Gold futures fell to $1,761 an ounce in recent action. Crude oil futures rose near $84 a barrel. The U.S. dollar lost ground versus the euro but rose against the yen.

Separate economic data released Thursday morning showed a surprise widening in June of the U.S. trade deficit, which reached its highest level in more than two and a half years.

“Today we’ve got two good pieces of news,” in the form of Cisco and the weekly employment reading, said Kevin Shacknofsky, Co-Portfolio Manager of the Alpine Dynamic Dividend Fund. “But it all comes down to whether financial contagion can be avoided in Europe. It comes down to whether Europe learned how to get ahead of the curve and stop muddling through the crisis.”