Stocks rallied as better-than-expected reports on employment and manufacturing pointed to faster profit growth.
Citigroup, General Electric and Wal-Mart Stores led the surge as investors snapped up shares of companies whose business is closely linked to the economy.
The Dow Jones industrial average rose 255.26, or 2.9 percent, to 8931.68, and the Nasdaq composite index climbed 43.51, or 3 percent, to 1487.94.
The Standard & Poor's 500-stock index rose 25.56, or 2.8 percent, to 938.87. The gain was its largest since Oct. 15.
So far this month the S&P 500 has climbed 6 percent, and it has surged 21 percent from a five-year low on Oct. 9. The broad index's last consecutive monthly gains were in November and December 2001.
While the rally has reduced the year-to-date drop from 32 percent, the S&P's current 18 percent decline -- if it holds up until the end of the year -- would be the index's biggest annual drop since 1974.
Stocks climbed after the Labor Department reported that new claims for state unemployment benefits fell to 364,000 last week from a revised 381,000. It was the lowest level since before last year's recession.
Gains continued after a Commerce Department report showed that orders for durable goods rose in October for the first time in three months.
In addition, a report from the National Association of Purchasing Management-Chicago showed factory activity in the area unexpectedly rose in November.
Citigroup rose $1.81, to $38.97; General Electric climbed 80 cents, to $27.15; and Wal-Mart gained $1.60, to $54.84.
International Business Machines climbed $2.64, to $87.70, and Chartered Semiconductor Manufacturing's U.S. shares rose $1.63, to $6.63. The provider of made-to-order chips agreed to share computer-chip plants with IBM to save money and utilize unused factory capacity.
Novellus Systems rose $2.95, to $37.43. The maker of equipment used to build semiconductors said that it will meet its fourth-quarter sales forecast and that orders may exceed expectations.
Other chip stocks also rose.
Intel advanced 70 cents, to $20.90. Texas Instruments rose $1.82, to $20.27; Analog Devices climbed $1.99, to $31.20; and Applied Materials gained 93 cents, to $17.49.
Cisco Systems rose 38 cents, to $14.83. Credit Suisse First Boston analyst James Parmalee said the maker of equipment to link computers should see sales accelerate as companies resume investing in information technology over the next 12 to 18 months. Parmalee rates the shares "outperform."
Eli Lilly rose $5, to $69, after the Food and Drug Administration approved the use of two of its drugs, Strattera for attention-deficit and hyperactivity disorder and Forteo to help prevent fractures in osteoporosis patients.
Retailers surged after the government reported that consumer spending rebounded in October after dropping in September, easing concern that holiday sales may be weak.
Home Depot gained $1.07, to $26.09, and Target advanced $1.72, to $35.30.
Michaels Stores jumped $3.71, to $38.61. The arts-and-crafts retailer earned 46 cents a share in its fiscal third quarter, 6 cents more than the analyst consensus.
General Motors rose $2.33, to $39.99, after saying its Saab unit will cut 1,300 jobs, or about 20 percent of its Swedish workforce, in an effort to return to profitability.
* The New York Stock Exchange composite index rose 12.89, to 496.29; the American Stock Exchange index rose 9.86, to 814.22; and the Russell 2000 index of smaller-company stocks rose 11.92, to 410.24.
* Advancing issues outnumbered declining ones by 23 to 6 on the NYSE, where trading volume fell to 1.36 billion shares, from 1.54 billion on Tuesday. On the Nasdaq, advancers outnumbered decliners by 3 to 1 and volume totaled 1.7 billion, down from 1.87 billion.
* The price of the Treasury's 10-year note fell $15.63 per $1,000 invested, and its yield rose to 4.26 percent, from 4.07 percent on Tuesday.
* The dollar rose against the Japanese yen and the euro. In late New York trading, a dollar bought 122.35 yen, up from 121.68 late Tuesday, and a euro bought 99.02 cents, down from 99.27.
* Light, sweet crude oil for January delivery settled at $26.89 a barrel, up 49 cents, on the New York Mercantile Exchange.
* Gold for current delivery fell to $316.80 a troy ounce, from $317.70 on Tuesday, on the New York Mercantile Exchange's Commodity Exchange.