Stocks rose sharply on Thursday as investor worry was eased after China refuted a report that it was reviewing its holdings in euro-zone sovereign bonds due to the region's debt.

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone exposure was groundless. The report had short-circuited a rally in the previous session.

It just means China is going to continue to be a sensible investor -- because of events in Europe, they are not going to change their basic investment strategy, said Hugh Johnson, chief investment officer of Johnson Illington Advisors in Albany, New York.

With every passing day, more and more investors are reaching the conclusion that although events in southern Europe will affect the European and U.S. economy, they will not derail the current recovery.

Microsoft Corp climbed 3.8 percent to $25.98, a day after ceding its position to Apple as the largest technology company by market cap, as FBR Capital Markets upgraded the Dow component to outperform, citing improving fundamentals and recent share underperformance.

The Dow Jones industrial average <.DJI> gained 231.03 points, or 2.32 percent, to 10,205.48. The Standard & Poor's 500 Index <.SPX> climbed 29.71 points, or 2.78 percent, to 1,097.66. The Nasdaq Composite Index <.IXIC> jumped 71.53 points, or 3.26 percent, to 2,267.41.

Technology stocks also rebounded after having been battered recently as a result of their higher concentration of overseas sales. The PHLX Semiconductor index <.SOXX> jumped 4.7 percent.

By late afternoon, the S&P 500 was trading above the 1,090 level it has failed to breach in the last week, which is seen as technical resistance.

Also being eyed by analysts as a significant indicator would be a close above the 200-day moving average, which now stand right above the 1,104 mark.

Data showing the U.S. economy grew at a slower pace than expected in the first quarter was not enough to keep investors from grabbing bargains after major indexes dropped more than 10 percent over the past month.

In other data released on Thursday, new applications for state jobless benefits dropped to 460,000 last week from 474,000 in the previous week, the Labor Department said, pointing to a gradual labor market recovery.

Dow component Pfizer Inc rose 1 percent to $15.26 after the drugmaker said it would stop recruiting patients for a clinical trial for its heart drug Inspra because the study reached its main efficacy goal early.

In earnings news, both Costco Wholesale Corp and Tiffany & Co reported quarterly profits that beat expectations. Tiffany also raised its outlook. Costco advanced 4.7 percent to $58.63. Tiffany shot up 5.4 percent to $45.96.

(Reporting by Chuck Mikolajczak; Editing by Jan Paschal)