Stocks ended sharply higher after rallying throughout the session Thursday as an upbeat report on jobless claims and falling oil prices led investors to retrace losses from earlier in the week ahead of a key jobs report on Friday.
TheDow Jones Industrial Average surged 191.40 points, or 1.6 percent, to close at 12,258.20, its biggest gain since Dec. 1, and highest close since Feb. 18.
Caterpillar , Bank of America and Boeing led the blue-chip index higher, while AT&T slipped.
The S&P 500 gained 22.53 points, or 1.72 percent, to close at 1,330.97, the biggest gain since Dec. 1, and the highest close since Feb. 18.
The tech-heavy Nasdaq gained 50.67 points, or 1.8 percent, to close at 2,798.74, also the highest close since Feb. 18.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell more than 10 percent to below 19.
All key S&P 500 sectors rose, led by industrials, financials and health care.
The dollar fell against a basket of currencies after European Central Bank President Jean-Claude Trichet said the ECB could increase rates as early as next month. Earlier, the ECB kept rates at 1 percent.
Oil prices fell as discussions were underway to negotiate peace planin Libya, although traders were not convinced the efforts would work. London Brent crude closed at $114.79 a barrel, while U.S. light, sweet crude regained ground in the latter part of the session to close just under $102.
Gold prices also slid, closing down nearly 1.5 percent to $1,416 an ounce. Gold mining stocks were among the day's biggest laggards with Barrick Gold and Newmont Mining leading the decline.
"I think the market is very pleased about the initial jobless claims numbers," Jeremy Zirin, chief U.S. equity strategist at UBS Wealth Management. "The most lagging component of this recovery has been jobs, and now we’re starting to see a pick up."
In the day's economic news, initial claims for unemployment fell 20,000 to 368,000 last week, the lowest level since May 2008, the Labor Department reported. The fact that claims have been below 400,000 for the second week is considered a signal that job growth isn't far behind.
The upbeat claims number has, in fact, raised expectations that the government jobs report on Friday will show strong gains. Economists expect the Labor Department to report a 185,000 rise in nonfarm payrolls, and a 190,000 gain in private-sector jobs, according to Reuters.
Some economists, have revised their estimates upward in light of the claims number, and news that the private sector added 217,000 jobslast month, according to ADP Employer Services and Macroeconomic Advisers.
Elsewhere, indications of monthly chain store salesshow retailers did better than expected in February. Analysts expect retailers, on average, will show a 3.6 percent gain in sales.
The major department stores all rose after reporting strong sales, including Saks, Macy's, JCPenney and Nordstrom. But Target, among the few retailers turning in a disappointing performance, warned that results in March may be weak as well given rising gas prices and a late date for Easter.
The industrial sector soared more than 2 percent as the dollar fell. Some of the biggest gainers in addition to Caterpillar, included Cummins , Deere , General Dynamics and Honeywell International .
And healthcare stocks gained. Managed care companies got a lift from Stifel Nicolaus, which raised Coventry Health Care , Wellpointand UnitedHealth Group to "buy" from "hold."
Meanwhile, transportation gained on falling oil prices, including US Airways and United Continental , as well as industrial transport company Con-way and Federal Express .
Most tech stocks traded higher, notably Apple , which climbed almost 2 percent after CEO Steve Jobs made a surprise return to the spotlight Wednesday, taking the stage to unveil the iPad 2.
Meanwhile, Research In Motion was expected to launch its version of the tablet—the PlayBook—on April 10, according to reports. The firm's shares rose almost 4 percent. Motorola already released its Xoom slate and HP's TouchPad is also on the horizon.
Among energy stocks, Valero shares jumped after the refiner said it expects to continue to profit from a cheaper grade of crude, and that its earnings, excluding a trading loss, would be better than expected.
Coal miners including Peabody and Arch Coal gained after investors piled into the sector, taking advantage of coal’s recent pullback.
“We’re very bullish on the global supply-demand outlook,” Jeremy Sussman, coal analyst at Brean Murray, Carrett & Co. told CNBC. “We’ve seen some M&A activity recently [within the sector] and we’d be taking advantage of the pullback.”
On the earnings front, Kroger gained after the grocery chain reported a boost in earnings, and announced a $1 billion share repurchase plan.
Foot Locker also rose after the sportswear and footwear retailer posted earnings that were better-than-expected, while Anheuser-Busch Inbev was unchanged after the beer manufacturer reported a 22 percent jump in earnings as higher margins offset falling U.S. sales.
Family Dollar Stores rejected a $7 billion bid from Trian Group, saying it "substantially undervalues" the retailer and added that selling the company would not be in the best interest of shareholders.
And came closer to buying out the rest of BSkyB for $14 billion when a British official supported the media conglomerate's proposal.
Volume on the consolidated tape of the New York Stock Exchange was 4.5 billion shares, while 1 billion changed hands on the NYSE floor.
Also in economic news, the Labor Department said the pace of U.S. nonfarm productivity slowed. Productivity rose at a 2.6 percent annual rate, and at a 2.3 percent pace in the third quarter, which was expected.
And the Institute for Supply Management's index of non-manufacturingrose to 59.7 in February, more than expected. The employment component of the index rose to 55.6 from 54.5, while the prices paid index rose to 73.3.
On Tap This Week:
THURSDAY: Money supply; Earnings-after-the-bell from Novell.
FRIDAY: Non-farm payrolls report, factory orders; Federal Budget Deadline.
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