Stocks closed higher, with the Dow staging its biggest two-day gain since August 2006, as interest rates stabilized.
"It's a little bit of a bounce because we got really oversold last week," said Tom Schrader, managing director of US listed trading at Stifel Nicolaus. "The technical indicators got to extreme levels to the downside and people are doing a little bargain hunting."
The Dow Jones Industrial Average rose about 71 points, or 0.5%, adding on to a big 187-point jump on Wednesday. The Nasdaq Composite gained 0.66%, buoyed by strength in chip stocks. The S&P 500 lagged the other indexes but still rose 0.48%.
"The market has had multiple excuses to pull back -- higher interest rates, higher oil prices, trouble in the Middle East -- yet the market is up, up and away which means there is sideline cash waiting to float the boat and increase momentum," said Al Goldman, chief market strategist at A.G. Edwards.
The government said this morning that rising gasoline prices caused an acceleration in wholesale inflation, as measured by the producer price index.
The Labor Department said PPI rose 0.9% in May, above the 0.6% expected by economists. However, excluding volatile food and energy costs, producer prices edged up just 0.2% -- the same as in April -- suggesting that core inflation, a measure closely watched by the Fed, is not accelerating.
"I think there was an overreaction earlier in the week, traders were reacting to inflation data overseas combined with the technical selling in the bond market," said Charles Rotblut, senior market analyst at Zacks.com. "Overall, the economy seems like it is just humming along."
Breadth was positive with advancing stocks outnumbering decliners by about three to two on the NYSE. Nine of 10 economic sectors tracked by S&P moved higher with gains led by the energy sector, which rose on higher crude oil prices. Shares of integrated oil giants Exxon Mobil and Chevron moved higher.
Transportation stocks such as United Parcel Service rebounded from recent declines, closing up 1.5%.
Light sweet crude futures gained 2.1% to $67.65 on the New York Mercantile Exchange. Crude oil is now up 11% year to date.
Financial stocks lagged, however, and the sector was in focus after Bear Stearns reported second- quarter results below Wall Street forecasts, citing lower sales in its trading units. The Wall Street Journal reported that a hedge fund managed by Bear Stearns is rushing to jettison large amounts of mortgage securities.
Meanwhile, investment banking powerhouse Goldman Sachs reported net income for its fiscal second quarter that handily topped market expectations as the company continued to see strength in investment banking.
Chip stocks saw broad interest with shares of industry bellwether Intel closing at a new 52-week high.
Investors continued to focus on the fixed income market, where the yield on the benchmark 10-year Treasury was relatively unchanged on Thursday at 5.22%. Yields rose to 5.24% earlier in the session following the PPI report.
Jobless claims for the week ended June 9 were unchanged at 311,000, slightly higher than the 310,000 predicted.
European Stocks Higher
The London FTSE-100 , Paris CAC-40 and Frankfurt DAX all closed higher following Wednesday's jump in U.S. stocks. The U.S. Federal Reserve's view on inflation helped spur buying of 10-year Treasurys, which had finally slipped to prices low enough to bring back investors.
"People aren't really that spooked about inflation, otherwise the bond market would have corrected yesterday," Beat Wittmann, CEO of investment products at Clariden Leu, told CNBC Europe.
But euro zone government bonds and German bunds fell Thursday morning, as investors remained concerned about rising European interest rates.
In corporate news, shares in French pharmaceutical Sanofi-Aventis slumped by 7.9% as a U.S. regulatory advisory panel unanimously recommended against approval of its weight-loss pill Zimulti late Wednesday.
Meanwhile in the U.K., slowing package holiday sales and acquisition costs saw the first-half loss at First Choice Holidayswiden to 82.5 million pounds, or $163 million, compared to the same period a year ago. But results were in line with expectations and shares rose 1.8%.
And Swedish truck marker Volvo prepared to delist from the U.S. Nasdaq stock exchange as the board of directors considers the costs too high for the benefits. Shares of Volvo rose 1.7%.Asian Stock Rally
Asian stock rallied in the afternoon session Thursday with U.S. Treasury yields on the retreat, investors were reassured by signs of strength in the U.S. economy. South Korea closed at a record high with Japan and Australia also putting in a strong performance.
Japanese exporters were further bolstered by a strong U.S. dollar, which hit a four and a half year year high against the Japanese currency, buoyed by data showing U.S. retail sales rose in May at the strongest pace since January 2006.
Tokyo's Nikkei 225 Average closed higher as Fanuc climbed on a new factory plan and a weakening yen lifted exporters such as Advantest. Small-cap issues rose, with the Mothers jumping 5.3%, supporting the overall market, while Fujitsu climbed 3.9% after French stock market watchdog AMF cleared Fujitsu's offer for French computer services group GFI Informatique.
South Korea's Kospi Index jumped to a record and past a peak hit last week as brokerages such as Samsung Securities surged on speculation parliament was set to pass a key act easing regulatory restrictions in the sector.
Chinese stocks fell after Premier Wen Jiabao warned that authorities would tighten policy further to prevent the economy from overheating. But speculators continued pushing up many small-capital shares.
Hong Kong stocks rose over 1% after U.S. markets rebounded on lower bond yields, with resource shares outperforming and Aluminum Corp. of China striking new highs following a broker upgrade.