Stocks climbed on Thursday as better-than-expected company profits and a decline in initial jobless claims stoked optimism that the economic slump is showing signs of abating.

The broad S&P 500 index is on track to rack up its best month since March 2000, and is up nearly 31 percent from the bear market low in March. The sharp advance was spurred by optimism over the state of the banking sector and hopes that the recession is easing.

The gains came even after a U.S. administration official said Chrysler LLC will proceed with Chapter 11 bankruptcy protection as attempts to reach concessions with lenders faltered.

Among the bright spots, Dow Chemical Co handily beat estimates, helped in part by cost reductions, and its shares jumped 18.4 percent to $16.00.

The quarter itself may not have been great, but there was an improving trend there, suggesting some of those tentative signs of economic stabilization we've seen in other data may actually be showing up in corporate results, said Jeff Kleintop, chief market strategist at LPL Financial in Boston.

That bears some good news perhaps for the second half of this year.

The Dow Jones industrial average <.DJI> rose 79.32 points, or 0.97 percent, to 8,265.05. The Standard & Poor's 500 Index <.SPX> gained 10.86 points, or 1.24 percent, to 884.50. The Nasdaq Composite Index <.IXIC> climbed 32.42 points, or 1.89 percent, to 1,744.36.

Data showed the number of workers filing new claims for unemployment benefits fell last week, but the number of people staying on benefits rose to a fresh record high, reflecting the continued impact of the recession on the labor market.

Kellogg Co rose 9.3 percent to $43.18 after profit topped expectations on cost savings and stronger sales of cereal.

Not all of the latest key quarterly results were good. Oil giant Exxon Mobil Corp was the Dow's biggest drag, down 2.2 percent at $66.93, after the company's profit missed Wall Street estimates as the global downturn cut into oil demand.

Consumer staples companies Procter & Gamble Co
and Colgate-Palmolive Co both slid on weak sales as consumers tightened their belts.

Dow component P&G was down 2.8 percent at $49.04, and Colgate was off 1 percent to $59.14.

Analysts also noted that expectations for overall corporate results were ratcheted down sharply ahead of the earning season.

On the Nasdaq, shares of First Solar Inc surged 24 percent to $179.77 and earnings and revenue surpassed estimates after the closing bell on Wednesday.

(Reporting by Leah Schnurr; editing by Jeffrey Benkoe)