Stocks Soar; Energy Powers the Rally

Stocks soared Thursday, led by energy and industrials, as encouraging economic news out of the U.S. and China fueled recovery hopes.

The Dow Jones Industrial Average gained 273.28, or 2.8 percent, to close at 10,172.53, after a 40-point drop in the prior session.

Most of the 30 Dow components finished higher, led by Caterpillar , Chevron and Alcoa.

Cisco was the lone decliner, but was off just a penny.

The S&P 500gained 3 percentand the Nasdaq advanced 2.8 percent. The CBOE volatility index, widely considered the best gauge of fear in the market, dropped 10 percent and was around 30 at the closing bell.

The most often cited reason for today's rally was that the market is oversold. But the big question was, will it last?

“I think this rally will last,” said Mark McLain, managing director of Landenburg Thalmann. “In the next couple of weeks, you should see some meaningful volume come back to the markets.”

Stocks are now near a bottom, said U.S. equity strategist Thomas Lee of JPMorgan, speaking at the Reuters Investment Outlook Summit in New York. He projects that the S&P 500 will jump more than 10 percent to reach 1,200 by the end of July and hit 1,300 by the end of this year.

Oil prices topped $75 a barrel as the International Energy Agency said the spill could be a "game changer" for supply while increasing its estimate for demand this year.

BP rebounded more than 12 percentafter falling to a 13-year lowon Wednesday as investors speculated that the company may need to cut its dividend and worried about its financial stability. The stock's decline left the company's market cap at around $82 billion as of the close Wednesday, half of what it was just a few months ago.

Other energy giants such as ExxonMobil , Chevron and ConocoPhillips advanced 3 percent or more.

Just a handful of decliners on the board today, including Goldman Sachs and AutoZone .

Goldman Sachs broke through the key $135 level, hitting a 52-week low, amid heavy options activity, which likely means investors think the company will continue to suffer from headline risk. There's some buzz that the SEC is currently investigating another Goldman mortgage-related deal.

Walgreen shares eked out a gain, even after UBS cut the drugstore chain's rating to "neutral" from "buy."

In the day's economic news, the government said the number of U.S. workers filing new unemployment claims fell less than expected last week, while the international trade deficit widened slightly in April, pointing to a moderate economic recovery.

The national foreclosure rate continued to fall in Mayfrom the previous month, according to foreclosure database website RealtyTrac. Foreclosure activity dropped 3.27 percent in May from the previous month, and was up 0.45 percent from May 2009.

Treasurys trimmed their lossesafter a decent auction of 30-year bonds. The $13 billion sale fetched a high yield of 4.182 percent and the bid-to-cover ratio was 2.87.

Spain saw strong demand for its three-year auction, an encouraging sign for investors worried about the European debt crisis.

Meanwhile, the European Central Bank held its key interest rate at a record low of 1 percent. The Bank of England also kept interest rates steady.

The euro rose for a third straight day. And gold, that safe-haven play investors have been piling into, dropped more than $7to settle at $1,220.80 an ounce as investors' appetite for risk came back.

Apple shares underperformed the broader market after AT&T said some iPad users have had personal information exposedvia a network security flaw, two months after the tablet computer was launched and smashed sales expectations.

Meanwhile, Google blasted Apple for setting new rules on developers that could prevent Google and other competitors from selling advertisement inside the iPhone and iPad apps, the latest sign of growing tensions between the two smartphone makers.

Pfizer rose even as the FDA warned the companyabout failing to quickly report serious and unexpected potential side effectsfrom its drugs already on the market.

A couple of earnings beats this morning — Del Monte Foods and Lululemon Athletics .

Shares of National Semiconductor rose ahead of the chip maker's earnings, due out after the bell today.

Volume was slightly above average, with 1.4 billion shares changing hands on the New York Stock Exchange. Advancers outpaced decliners, roughly 7 to 1.

Still to Come:

FRIDAY: Fed's Plosser and Kockerlakota speak; retail sales; consumer sentiment; business inventories; S&P index rebalancing details announced

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