US STOCKS-Wall St rallies, Republicans to offer short-term hike in debt limit


* CBOE Volatility index plunges 12 percent

* U.S. jobless claims at 6-month high but trend improving

* Indexes up: Dow 1.21 pct, S&P 1.25 pct, Nasdaq 1.50 pct

By Angela Moon

NEW YORK, Oct 10 (Reuters) - U.S. stocks rallied onThursday, with major stock indexes rising more than 1 percent onsigns of progress in negotiations to raise the U.S. debt limitjust a week before a deadline.

House of Representatives Republicans said they would proposelegislation for a short-term debt limit increase to avoid a U.S.debt default. House Speaker John Boehner said the short-termdebt limit increase is conditioned on an offer by Democrats tostart negotiations on fiscal issues.

The CBOE Volatility index VIX, often used to measurethe level of investor anxiety, plunged more than 12 percent to17.17.

President Barack Obama and congressional leaders are set tomeet Thursday for further discussions.

"Hopes amongst investors are growing that a thaw is startingto make its presence felt," said Andrew Wilkinson, chiefeconomic strategist at Miller Tabak & Co in New York.

"Thinking back to December 2012 when the fiscal cliff wasfast approaching, investor confidence was repeatedly batteredfollowing a series of meetings that failed to hammer a positiveoutcome. Bottomline, we'll believe it when we see it."

A partial U.S. government shutdown has continued 10 daysafter congressional Republicans refused to pass a budget for thenew fiscal year without an attachment to defund Obama'shealthcare overhaul.

U.S. Treasury Secretary Jack Lew said the gridlock inWashington was hurting the U.S. economy, and urged Congress toraise a cap on government borrowing to keep America fromdefaulting on its debt.

The Dow Jones industrial average was up 191.76points, or 1.30 percent, at 14,994.74. The Standard & Poor's 500Index was up 21.88 points, or 1.32 percent, at 1,678.28.The Nasdaq Composite Index was up 56.30 points, or 1.53percent, at 3,734.07.

Data showed the number of Americans filing new claims forjobless aid touched a six-month high last week as acomputer-related backlog of claims was processed and a partialU.S. government shutdown began to hit some non-federal workers.

This year's high-flying tech stocks - such as Facebook Inc, up 3.2 percent at $48.28, and Inc,up 2.3 percent at $305 - rebounded after several days ofdeclines.

The Nasdaq 100 technology sector was up 1.1 percentafter having shed 2.8 percent over the last three sessions, itsbiggest three-day drop since late June.

Best Buy Co Inc shares jumped 7.6 percent to $39.00in heavy volume early on Thursday. The electronics retailer isabout to launch a trade-in promotion program where customers canswap an old smartphone for a $100 gift card that can be used tobuy the new Apple iPhone 5s and 5c.

Citrix Systems Inc shares were off 11 percent at$59.06 after the cloud computing software maker estimatedquarterly results below analysts' expectations as businessesdelayed contracts.

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