Upbeat outlooks from economic bellwethers 3M, UPS and Caterpillar catapulted stocks on Thursday as investors shed some of their fears about the strength of the recovery.

The parade of prominent names reporting earnings continued after the market's close with Microsoft Corp , whose shares rose 2.9 percent in regular trading. The software company reported quarterly results after the close and its shares were trading little changed in extended hours.

The major indexes posted their largest daily gains in more than two weeks, led by United Parcel Service Inc , which rose 5.2 percent after it raised its outlook. The world's largest package delivery company is viewed as a barometer of consumer and business demand.

UPS guiding higher is a very good sign since the amount of shipping volume is directly correlated to the strength of the economy, said Peter Jankovskis, co-chief investment officer of OakBrook Investments LLC in Lisle, Illinois.

Caterpillar Inc , up 1.7 percent to $68, and 3M , up 3 percent to $84.75, were among multinationals that raised their outlooks, suggesting the global economy may also be on a stronger footing.

The companies that are doing well generally are the ones that have significant overseas revenues or some kind of unique product, said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

The Dow Jones industrial average <.DJI> gained 201.77 points, or 1.99 percent, to 10,322.30. The Standard & Poor's 500 <.SPX> added 24.08 points, or 2.25 percent, to 1,093.67. The Nasdaq Composite <.IXIC> rose 58.56 points, or 2.68 percent, to 2,245.89.

Thursday's rally reversed losses from a day earlier after testimony by Federal Reserve Chairman Ben Bernanke soured investors on the economic outlook.

But for the fourth time this month the S&P 500 failed to break through 1,100, a level that is proving to be a tough hurdle and could be in the way of further gains.

Earlier on Thursday, data showed weekly applications for unemployment insurance rose. Job growth has slowed after strong gains early in the year, cutting into household spending and holding back the economy's recovery from the toughest recession since the 1930s.

We can't find a story that's going to convince us unemployment is going to materially get better any time soon and that weighs on the consumer, who controls a lot of the economy, Caughey said. That's a prevailing negative force investors think about.

After the closing bell, online retailer Amazon.com Inc tumbled 15 percent following its quarterly results.

Home resales hit a three-month low in June, a smaller decline than economists expected, while the median home sale price rose by 1 percent from the previous year.

Homebuilders stocks rose. KB Home rose 3.9 percent to $11.06 and Lennar Corp added 3.1 percent to $14.76. The PHLX Housing index <.HGX> jumped 4.2 percent.

Advancers outnumbered decliners by almost seven to one on the New York Stock Exchange, and by five to one on the Nasdaq.

About 8.7 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, below last year's estimated daily average of 9.65 billion.

(Reporting by Rodrigo Campos; Editing by Kenneth Barry)