RBC Capital Markets upgraded the banking sector, saying it is poised for a multiyear bull market.
The KBW bank index <.BKX> added 4.8 percent.
A surge in crude oil prices underpinned the broader market after Goldman Sachs raised its year-end oil price forecast to $85 a barrel, saying economic stabilization and tight supplies should bode well for prices.
U.S. crude settled up 4 percent at $68.81 a barrel on the New York Mercantile Exchange.
The bigger gain in oil, not just today, is encouraging on the macro level. It's indicative of demand, said Cleveland Rueckert, market analyst at Birinyi Associates Inc, in Stamford, Connecticut.
But Rueckert said he preferred for oil to hold around $60 barrel. You don't want to have the same thing that happened last year when it ... becomes a burden to a lot of the consumers who are supposed to drive economic growth.
The Dow Jones industrial average <.DJI> gained 74.96 points, or 0.86 percent, to 8,750.24. The Standard & Poor's 500 Index <.SPX> climbed 10.70 points, or 1.15 percent, to 942.46. The Nasdaq Composite Index <.IXIC> rose 24.10 points, or 1.32 percent, to 1,850.02.
A broad run-up in commodities prices lifted shares of basic material companies, with Alcoa Inc up 6.2 percent at $10.69, while Newmont Mining advanced 2.2 percent to $47.44.
The S&P materials index <.GSPM> gained 2.2 percent, while the gold BUGS index <.HUI> rose 3.3 percent.
Shares of Caterpillar Inc , which sells bulldozers and excavators, shot up 3.7 percent to $38.02.
Among bank stocks, shares of Bank of America climbed 6 percent to $11.87, while Wells Fargo shot up 4.02 percent to $25.10.
Shares of JPMorgan Chase shares rose 4.03 percent to $35.35, a gain that put the stock among the Dow's top boosts. Citigroup raised its price target on JPMorgan's stock and said it saw the bank's commercial real estate losses as manageable.
The brokerages' positive views on the financial sector is of keen interest to investors, with the government still trying to resuscitate the sector to support the economic recovery.
Plane maker Boeing rose 4.6 percent to $50.57 after UAL Corp , parent of United Airlines, asked Boeing and its European competitor EADS to bid on an order of up to 150 planes.
In the energy sector, Chevron Corp shares ended up 2.2 percent to $69.72, while Exxon Mobil added 1.3 percent to $72.98.
The S&P energy index <.GSPE> rose 2 percent.
Thursday's economic reports generally supported expectations that the recession-hit economy is starting to improve, albeit with some misgivings about disappointing May sales reported by major retailers.
On the Nasdaq, Apple Inc shares rose 2 percent to $143.74 after Societe Generale started coverage of the technology bellwether with a buy rating.
Government data showed U.S. non-farm productivity rose by 1.6 percent in the first quarter, much stronger than initially estimated, while the number of workers filing new claims for jobless benefits fell last week.
Investors, however, are cautious about what Friday's report on U.S. employment might reveal as they look for more definitive signs that the recession that begun in December 2007 is easing. Since hitting a 12-year low on March 9, the S&P 500 has risen nearly 40 percent.
(Editing by Kenneth Barry)