A benign report on labor costs sparked a broad-based rally on Wall Street as investors who had abandoned stocks jumped back into the market, believing once again that inflation is under control.
The Dow Jones industrial average rose 227.64 points, to 10,622.53, extending Wednesday's 92-point gain. It was the Dow's biggest advance since it rose 235.24 points on Sept. 3.
The Standard & Poor's 500-stock index rose 45.73, to 1342.44, and the Nasdaq composite index rose 72.70, to 2875.22. Still, some analysts believed the wave of buying was an extreme reaction to fairly modest government data.
"The market was looking for an excuse to go up," said Bernie Schaeffer, chairman of Schaeffer's Investment Research Inc.
Stocks shot higher after the Labor Department said its employment cost index rose 0.8 percent in the third quarter, slightly lower than the 0.9 percent increase many economists were expecting. Economists view the index as a significant barometer of inflationary pressures.
In recent weeks, the market has been dominated by a debate over whether the Federal Reserve will raise interest rates for the third time this year in its continuing effort to ward off inflation.
Traders said the employment cost index might not deter the Fed from implementing another rate boost when its policy-writing Open Market Committee meets Nov. 16, but they believed the next increase could be the last for a while.
Bond prices rose for a second straight session, pushing the yield on the 30-year Treasury bond down to 6.25 percent, from 6.33 percent late Wednesday, as the price rose $10.31 per $1,000 in face value. Stocks drew some additional support from the retreat in bond yields, which earlier this month rose high enough to lure some investors away from stocks.
The promise of stabilizing interest rates boosted bank stocks for a second straight session. Citigroup rose 3, to 54 1/8, and American Express soared 10 3/8, to 161. Chase Manhattan rose 5-13/16, to 88-9/16.
Banks are especially sensitive to rising rates because higher rates can discourage customers from borrowing money, cutting into lending volume. Also, higher rates can reduce the value of a financial firm's fixed holdings.
Investors focused on the employment cost numbers to the exclusion of a strong report on the nation's gross domestic product. The government said the U.S. economy expanded at an annual rate of 4.8 percent from July through September, the fastest pace this year.
On the Nasdaq, Amazon.com fell 4-15/16, to 71. The online retailer said late Wednesday that while its third-quarter results topped expectations, losses more than tripled from a year ago as the company spent heavily to expand its online offerings.
MCI WorldCom rose 6-1/16, to 83 5/8, after saying third-quarter operating profits nearly tripled from the same period in 1998. The telecommunications company earned $1.09 billion, or 55 cents a share, beating analysts' expectations of 54 cents a share.