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Dow Extends Winning Streak for 3rd Session

Stocks rose for a third straight day Thursday as an encouraging manufacturing report helped fuel investor optimism about the recovery.

The Dow Jones Industrial Average gained more than 80 points, or 0.8 percent, closing just shy of 10,400. That brings its three-day gain to 2.9 percent. The S&P 500 and Nasdaqeach rose0.7 percent.

After the bell, Dow futures tumbled as the Fed unexpectedly raised the discount rate, the rate the Fed charges banks, a quarter percentage point to 0.75 percent.

“I'm shocked. Completely shocked,” Todd Schoenberger, managing director of LandColt Trading said of the Fed’s move to raise the discount rate. "Expect a dramatic selloff at the open tomorrow morning," Schoenberger said.

“It makes me wonder if the CPI number coming out tomorrow is going to be just absolutely horrible—maybe they got wind of something,” Schoenberger said.

Economists currently expect to see consumer prices fell 0.1 percent in January, after a 0.6-percent increase in December, according to the latest Reuters survey.

Some market pros had already suggested the market may be lower tomorrow due to options expirations.

Schoenberger expects the Fed to raise the federal-funds rate, the rate banks charge each other, at its next meeting March 17-18. He, like many traders, didn't expect the Fed to make a move until the second half of this year.

Jack Ablin, chief investment officer at Harris Private Bank in Chicago, said he thinks the Fed will keep the fed-funds rate on hold through the end of the year.

The increase in the discount rate "does not mean that the Fed is ready to hike rates or has a set time for such a move. But it does mean that the Fed is preparing the way,” said Robert Brusca, chief economist at FAO Economics. “This is very much a move to prepare markets and to test markets to see if they are ready to absorb a rate increase by putting the Fed’s lending vehicles back in a normal configuration,” he said.

In today's economic news: The Philadelphia branch of the Fed said its gauge of regional manufacturing rose to 17.6 in February from 15.2 in January. Economists had expected the gauge to rise to 17, according to a Reuters survey. Measures of new orders and employment hit their highest levels since the fall.

Leading indicators rose 0.3 percent and producer prices climbed 1.4 percent, both in January, while initial jobless claims unexpectedly rose by 31,000last week.

The dollar ended higheragainst both the euro and yen — and soared even higher after-hours after the Fed announcement. Oil and gold rose. The IMF this morning announced plans to sell its remaining gold.

Travelers was the biggest gainer on the Dow, followed by Boeing and DuPont as investors continued to pile into financials and industrials.

Some notable earnings beats:

Hewlett-Packard gained 1.4 percent after the tech giant beat earnings estimates and raised its full-year guidance.

Chip-equipment maker Applied Materialsalso beat estimates and raised its guidance.

Wal-Mart Stores was the biggest drag on the Dow after the discount giant beat on earnings but disappointed investors with weaker than expected revenueand a cautious outlook.

Goodyear Tire posted results that beat Wall Street expectations, while Hormel also reported a higher profit.

Barrick Gold said its profit more than doubled due to stronger gold prices, while the company is spinning off its African operations.

US regulators have denied approval to XenoPort and GlaxoSmithKline for a drug to treat restless leg syndrome. Tests found a potential link to cancer found in rats. XenoPort shares tumbled 62 percent on the news.

Volume was light, with just 7.24 billion shares traded on the NYSE, American Stock Exchange and Nasdaq combined, more than 2 billion shy of last year's daily average. Advancers outpaced decliners, roughly 9 to 4.

Still to Come:

THURSDAY: Earnings from CBS and Dell after the bell
FRIDAY: CPI; Earnings from JCPenney

Send comments to cindy.perman@nbcuni.com.