U.S. stocks gained sharply on Thursday after an expansion in business productivity and a fall in jobless claims boosted investor confidence about the economy, while Cisco led gains in tech shares.

U.S. non-farm productivity rose more than expected in the third quarter as companies squeezed more output from a smaller pool of labor, while fewer U.S. workers filed new jobless insurance claims than forecast last week -- hitting a 10-month low.

Cisco shares gained 2.2 percent to $23.79 after the company reported earnings late on Wednesday. The technology bellwether reported better-than-expected quarterly revenue, and its board authorized up to $10 billion in stock buybacks.

We opened on good news from Cisco and the market just moved up higher on better news on productivity and unemployment numbers ... The next news that will move the market will be the raft of earnings after the bell today, and the unemployment numbers tomorrow, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

The Dow Jones industrial average <.DJI> gained 172.76 points, or 1.76 percent, to 9,974.90. The Standard & Poor's 500 Index <.SPX> advanced 15.95 points, or 1.52 percent, to 1,062.45. The Nasdaq Composite Index <.IXIC> rose 44.18 points, or 2.15 percent, to 2,099.70.

On Friday, the Labor Department is expected to report that fewer jobs were cut in October than in the previous month. But the jobless rate is expected to rise to 9.9 percent, exceeding a 26-year high of 9.8 percent in September. Economists polled by Reuters have forecast a loss of 175,000 jobs in October, sharply below the 263,000 jobs cut in the previous month.

In Thursday's session at midday, other technology stocks also advanced. Intel Corp gained 2.2 percent to $19.00 and Microsoft rose 2.2 percent to $28.68.

Shares of IMS Health Inc soared 23.5 percent to $20.76 after the company agreed to be bought by TPG and CPP Investment board. The deal was valued at $5.2 billion, including the assumption of debt.

But CVS Caremark Corp tumbled 19.7 percent to $29.04 after comments from Chief Executive Tom Ryan on weakness in the pharmacy benefit management business.

U.S. retail chains reported October sales that rebounded from the lows of a year ago, but many failed to surpass Wall Street's increased expectations as consumers spend selectively headed into the holiday season.

The S&P retail index <.RLX> rose 1.2 percent.

(Reporting by Angela Moon, Editing by Jan Paschal)