The S&P 500 and Nasdaq both jumped 1 percent on Wednesday as increased industrial production and a pickup in mergers and acquisitions reinforced hopes the economy was gaining speed.

Commodity prices rose, with gold hitting an 18-month high, and boosted natural resource companies like Freeport-McMoran Copper & Gold Inc , up 1.6 percent to $72.49.

Software maker Adobe Systems Inc said it will buy Omniture, a company that makes software to analyze Web traffic, in a bid to boost sagging sales.

Industrial output advanced for a second consecutive month in August, while higher gasoline costs pushed up consumer prices, although economists said the risk of inflation remained low.

This is a shot in the arm for recovery. This is what we're looking for, Jack Ablin, chief investment officer at Harris Private bank in Chicago. We're looking for solid evidence, not just stimulus, the economy is recovering, and this is really the first piece of evidence that needs to fall into place.

The Dow Jones industrial average <.DJI> was up 76.55 points, or 0.79 percent, at 9,759.96. The Standard & Poor's 500 Index <.SPX> rose 11.72 points, or 1.11 percent, at 1,064.35. The Nasdaq Composite Index <.IXIC> jumped 21.74 points, or 1.03 percent, at 2,124.38.

The S&P hit a new high for the year shortly after the open, and is now up 56 percent from the March 9 low.

In the latest sign that M&A activity is picking up, Adobe said it plans to pay $1.8 billion for Omniture Inc as Adobe, the maker of Photoshop and Acrobat looks to turn around declining sales.

Adobe shares fell 6 percent to $33.49, while Omniture shares surged 25.5 percent to $21.74.

M&A activity is considered a key sign post for the economy as businesses display confidence and begin to spend.

Financial shares led the market higher as the KBW banks index <.BKX> rose 3.5 percent. Citigroup Inc climbed 3.9 percent to $4.28 and JPMorgan Chase & Co added 2.2 percent to $44.16.

Gold hit an 18-month high of $1,020.50 an ounce and helped to lift silver and platinum to multi-month peaks, while copper hit a 1-week high. The dollar slumped to a one-year low against a basket of currencies.

There seems to be an inverse relationship between the dollar and equity markets in general, so any temporary rise in the dollar could also lead to investors taking a little money off the table, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.

Genworth Financial Inc climbed 9 percent to $13.14 a day after it priced a common share offering.

Verizon Communications Inc capped gains on the Dow and was down 2.3 percent to $30.28. UBS downgraded the stock to neutral from buy, saying the telecommunications company is likely to miss its outlook for 2009 earnings growth.

(Reporting by Edward Krudy, editing by Jeffrey Benkoe)