Stocks staged a healthy advance Thursday in reaction to a pullback in oil prices, some better-than-expected economic data and a revival of takeover activity.
Investors who have been worried about the effect of high fuel prices on consumer spending were pleased that the energy markets gave up early gains Thursday that briefly drove oil above $125 a barrel. Crude futures finished at $124.12, down 10 cents, in New York trading.
Among other positive signs, the Federal Reserve Bank of Philadelphia released a report suggesting that the region's manufacturing sector is contracting this month at a much slower pace than in April.
Meanwhile, major companies including General Electric and CBS were announcing plans to buy or sell businesses.
"The encouraging news is that the markets have become more functional, and large companies are able to make strategic purchases and sales, which previously was a very difficult thing to do," said Alan Gayle, senior investment strategist for RidgeWorth Capital Management.
Fears that the credit markets could remain paralyzed have eased significantly. Federal Reserve Chairman Ben S. Bernanke said in a speech Thursday that he was encouraged by recent efforts by banks to raise cash.
The Dow Jones industrial average rose 94.28 points, or 0.7%, to 12,992.66.
The Standard & Poor's 500 index and the Nasdaq composite index jumped more than 1% to their highest closes since Jan. 3.
The S&P; climbed 14.91 points, or 1.1%, to 1,423.57, and the Nasdaq surged 37.03 points, or 1.5%, to 2,533.73.
The technology-laden Nasdaq got a boost from Intel, which rose $1.13, or 4.7%, to $24.97 after a Lehman Bros. analyst lifted his price target on the chip maker, citing strong product demand.
The Russell 2,000 index of smaller companies rose 7.31 points, or 1%, to 743.38.
Advancing issues led decliners by more than 2 to 1 on the New York Stock Exchange.
Yields fell on government bonds. The yield on the benchmark 10-year Treasury note dropped to 3.81% from 3.91% late Wednesday.
The dollar was lower against most other major currencies, and gold prices climbed.
In other economic data, the Fed said nationwide industrial output sank 0.7% last month, partly because of production cutbacks in the automotive industry. The drop was the second straight decline and more than double the reduction analysts had forecast on average.
The Labor Department said first-time applications for unemployment benefits rose last week by 6,000 to 371,000, suggesting that the labor market remains weak but in check.
In deal-making news, CBS agreed to buy online technology news company CNet Networks for $1.75 billion. CBS said the deal would boost its Internet presence and allow it to tap the growing market for online advertising.
CNet soared $3.46, or 44%, to $11.41, while CBS fell 59 cents, or 2.4%, to $24.23.
General Electric plans to auction off its home-appliance business for as much as $8 billion, the Wall Street Journal reported. GE shares slid 14 cents to $32.37.
Meanwhile, the Ask.com unit of IAC/InterActiveCorp bought Dictionary.com and other reference websites in the search-engine operator's latest effort to distinguish itself from Google and other much larger rivals. IAC/InterActiveCorp fell 2 cents to $23.71.
In other market highlights:
* J.C. Penney gained $2.07, or 4.7%, to $46.32 after posting a slightly smaller-than-expected drop in earnings for the latest quarter. But the retailer predicted difficult conditions for the entire year.
* ArcelorMittal's U.S.-traded shares surged $3.58, or 3.6%, to $100.58 after the world's largest steelmaker posted a 5% jump in first-quarter profit.
* Overseas, key stock indexes rose 0.9% in Japan and 0.6% in Britain. Shares were nearly flat in Germany and France.