Stocks rebounded on Thursday after brokerage upgrades sent the semiconductor sector to a 13-month high and fresh data pointed to a growing economy.
The indicators helped soothe concerns that investment banks could face heavy losses on subprime mortgages as two Bear Stearns Cos. hedge funds struggled to remain afloat.
After choppy trading in the first half of the session, indexes turned higher following a report that showed manufacturing activity in the Mid-Atlantic region grew at its fastest pace in two years, boosting technology and other economically-sensitive shares.
Also on Thursday, the Conference Board said its index of leading indicators rose 0.3 percent in May.
People are realizing profit growth is going to reaccelerate along with GDP growth, so earnings this quarter have the potential to surprise on the upside, said Bucky Hellwig, senior vice president at Morgan Asset Management, in Birmingham, Alabama.
The Dow Jones industrial average was up 56.42 points, or 0.42 percent, at 13,545.84. The Standard & Poor's 500 Index was up 9.35 points, or 0.62 percent, at 1,522.19. The Nasdaq Composite Index was up 17.00 points, or 0.65 percent, at 2,616.96.
A rally in chipmakers helped the indexes recover from losses of more than 1 percent on Wednesday.
The Philadelphia Stock Exchange Semiconductor Index jumped 3 percent, climbing to its highest since May 2006, after Stifel Nicolaus upgraded Advanced Micro Devices Inc. to buy, and Lehman Brothers lifted Nvidia Corp. to overweight.
Nvidia shares shot up 7.8 percent to $42.98 and ranked among the leading stocks boosting the Nasdaq. Advanced Micro shares jumped 7.9 percent to $14.72 on the NYSE.
Energy stocks were up sharply after crude futures steadied following Wednesday's sell-off. Exxon Mobil Corp. rose 1.8 percent to $84.30 on the NYSE. Chevron Corp. advanced 2.3 percent to $82.85.
Financial stocks pared losses following an auction of collateralized debt obligation bonds seized by Merrill Lynch & Co. from two Bear Stearns Cos. hedge funds, marking Merrill's departure from the funds.
Merrill Lynch's stock lost 0.4 percent to $87.30. Bear Stearns shares rose 1.8 percent to $145.81.
Shares of H&R Block Inc., which is selling its money-losing subprime mortgage unit to buyout firm Cerberus Capital Management, fell 3.3 percent to $22.04 after the company said the unit's net asset value fell to $1.1 billion.
Shares of Starbucks Corp. dropped 3.9 percent to $26.26 on Nasdaq, as its chief financial officer said he sees the possibility of notching earnings at the upper end of the company's outlook as challenging.
Shares of Kraft Foods Inc. jumped on a report that activist investor Nelson Peltz, whose fund has acquired a 3 percent stake in the shares, wants to talk to the food company about focusing on only its most successful products and finding better uses of its balance sheet, a source familiar with the situation said.
Kraft stock was up 6.6 percent to $36.74 and was the third-biggest positive influence on the S&P.
Trading was moderate on the NYSE, with about 1.61 billion shares changing hands, below last year's estimated daily average of 1.84 billion, while on Nasdaq, about 2.06 billion shares traded, above last year's daily average of 2.02 billion.
Advancing stocks outnumbered declining ones by a ratio of about 6 to 5 on the NYSE and by 10 to 9 on Nasdaq.