The Dow and S&P catapulted to new highs and stocks closed with massive gains following strong retail sales data and a major corporate acquisition.
"We started out with better than expected retail numbers and it just went from there; M&A deals came through better than expected and people put a lot of the concerns behind them," said John Massey, portfolio manager at AIG SunAmerica Asset Management.
"You got money coming in from the sidelines. People don't want to be left behind," Massey added. "Technically, it looks like the market could go higher."
The Dow Jones Industrial Average surged more than 280 points, or 2.1%, closing at a new all-time record high. The blue chip index posted the biggest one-day point-gain for the blue chip index since October 2002. The S&P 500 also closed at a record high, up 1.9%, with similar gains for the Nasdaq Composite.
"The market thinks the earnings picture should be fine, the economy looks good and financial problems are not going to slow down the broader market," said Peter Dunay, investment strategist with Leeb Capital Management. "The market is telling you that we're seeing a lot of optimism for the rest of the year."
The Dow, which rose 76 points in Wednesday's session, closed with the best best two-day point gain since November 2002.
"We're going into an earnings season that people thought was not going to meet expectations, and a lot of numbers have come out better than expected," said Russell Lundeberg, chief investment officer at Barrett Capital Management.
Wall Street was encouraged by a batch of June same-store sales that came in above expectations. Wal-Mart Stores, the world's largest retailer, posted a 2.4% rise in U.S. same-store sales, much higher than the 0.8% average analyst estimate.
"Investors were waiting for a round of positive news and got it this morning," said Frederic Dickson, chief market strategist at D.A. Davidson. "Everyone was so pessimistic on the retailers and retail comps came in better than expected; it was just what the market needed to hear."
Thursday's gains were across the board and all ten economic sectors tracked by S&P traded higher. Four sectors saw gains of 2% or more, led by a 2.7% gain for basic materials, which was boosted by 's takeover offer from . Canada's Alcan accepted the British mining giant's $38 billion bid, which topped a previous hostile bid from rival Alcoa .
The financial sector also added to the positive mix as the influential group saw gains of 1.7% after concerns eased somewhat for the subprime mortgage market. Shares of American Express jumped 5% while JP Morgan Chase gained 2.9%.
In other merger news, chemicals maker Huntsman agreed to a $6.5 billion buyout offer from Apollo Management, scrapping the $5.6 billion agreement with Dutch chemicals company Basell.
Shares of J.C. Penney rose after the department store chain reported a smaller-than-expected decline in June sales. The company said results were helped by strong early back-to-school sales.
Teen clothing retailer Abercrombie & Fitch said June same-store sales increased 2%, beating analyst expectations by a wide margin.
Falling sales at Motorola caused the cell-phone maker to reduce quarterly guidance Wednesday, sending shares of the company lower in pre-market trading. Motorola also rebuffed calls from activist investors to change its management structure.
In economic news, first-time unemployment benefits claims fell by 12,000 for the week ended July 7 to 308,000, better than economists' forecast for a decline of 3,000. The Commerce Department said the trade deficit widened in May to $60.04 billion, in line with expectations.
New York light sweet crude futures initially traded above $73 a barrel but pulled back on expectations of increased refinery output.
European Stocks Close Higher
European stock markets closed firmly higher as largely positive earnings and consolidation in the mining sector offered some buying opportunities.
London-listed mining stocks such as Lonmin, Xstrata, Anglo American and BHP Billiton boosted the FTSE-100 on the news that Britain's Rio Tinto offered to buy Alcan.
In France, high-speed train and industrial engineer Alstom powered to the top of the CAC-40 as it posted a 27% rise in first-quarter sales. The strong performance was partly due to a big contract from French state-owned railway SNCF. Shares of Alstom were higher.
Meanwhile, in Switzerland engineering group Sulzer beat expectations with a 29% rise in first-half orders, the company also said it would resume its share buyback program. Shares of Sulzer gained.
Asian Stocks Mixed
Asian stocks rebounded in the afternoon session Thursday as optimism over U.S. corporate earnings helped offset worries about the subprime mortgage market. South Korea set its sixth record close for July, but Japan reversed earlier gains to end lower.
Tokyo's Nikkei 225 Average finished weaker to log its lowest close in two weeks, weighed down by Tokyo Electron and similar stocks after the company reported weak chip orders data a day earlier. Shares of Nomura Holdings tumbled nearly 5% after Deutsche Securities lowered its target price on Japan's largest brokerage, citing concern that subprime loan losses could weigh on earnings. The market earlier shrugged off news that the Bank of Japan left its key policy rate unchanged at 0.50% for a fifth month as expected.
South Korea's KOSPI index gained more than 1%, marking the sixth record close in the past seven sessions. Daewoo Shipbuilding rose after posting strong operating profit growth while Samsung Electronics and Posco jumped ahead of earnings updates.
China's Shanghai Composite Index was higher, led by financial blue chips, shrugging off investor concern on Wednesday that new initial public offerings would overwhelm the market with fresh supply. Western Mining, the most actively traded stock, rose a spectacular 147.11% in its debut on the Shanghai market.
Hong Kong stocks hit a record -- their seventh in the last eight sessions, with broker upgrades helping to lift large-caps China Mobile and Ping An Insurance to all-time highs. The debut by New World Department Store China, a spin-off from conglomerate New World Development, was slightly off expectations, with some saying there were plenty of other recently listed consumer plays to choose from.