The market was unfazed by the Labor Department's headline producer price index, which rose 0.9 percent in May due to surging gasoline prices — above April's reading and higher than economists predicted. Investors instead were pleased that the core PPI, which strips out often-volatile food and energy costs, posted a small 0.2 percent rise, as expected, after a flat reading in April.
If core inflation is under control, the Federal Reserve is less likely to lift interest rates, a worry that started dogging the market last week, when the yield on the benchmark 10-year Treasury note passed 5 percent for the first time since last summer.
The 10-year yield edged up slightly Thursday to 5.22 percent from 5.21 percent late Wednesday, but stayed well below the peak of 5.295 percent reached Tuesday. The market's initial dismay over rising bond yields and the diminishing chance of a rate cut seems to have abated; with Treasury yields appearing stable, the market is more at ease with the idea that the Fed probably won't lower rates this year, said Jay Suskind, head trader at Ryan Beck & Co.
"Now perhaps the glass is being seen as half-full," Suskind said. "If the reason for higher interest rates is growth, well, at the end of the day, that's what grows corporate earnings."
The consumer price index, an inflation gauge that is even more closely watched by the Fed than the PPI, will be released Friday.
The Dow rose 71.38, or 0.53 percent, to 13,553.73. The Dow has risen 258 points over the past two sessions, logging its largest two-day point gain since July 18-19.
The blue chip index is still 122 points below the record close it hit on June 4, but it is up 287 points from 13,266.73 — the trough it tumbled to on June 7, after rising yields started spooking investors.
Broader stock indicators also rose Thursday. The Standard & Poor's 500 index advanced 7.30, or 0.48 percent, to 1,522.97, and the Nasdaq composite index climbed 17.10, or 0.66 percent, to 2,599.41.
Giving Wall Street an additional boost were rising stock markets overseas. Japan's Nikkei stock average gained 0.62 percent, Britain's FTSE 100 added 1.38 percent, Germany's DAX index rose 2.19 percent, and France's CAC-40 advanced 1.90 percent.
In other economic data Thursday, the Labor Department said jobless claims totaled 311,000 last week, unchanged from the previous week and a better result than the market expected.
A dearth of economic and earnings data last week gave Wall Street time to mull over this year's sharp rise in stocks, and investors took some money off the table. But with Thursday's core PPI arriving in line with most economists' estimates and bond yields retreating from multi-year records, Wall Street decided to jump back into stocks.
"The aggregate of all the statistics of the last month, except those related to homebuilding, has pointed to a stronger economy," said John Merrill, chief investment officer of Tanglewood Capital Management in Houston.
Merrill added that although high yields are seen as unfavorable because they slow down corporate deal-making, it's important to note that the 10-year Treasury yield's jump over the past two weeks has helped long-term yields exceed short-term yields. Over the past several months, short-term yields were flat with or higher than long-term yields — an unusual pattern that implies the economy is headed for a slowdown or recession. A return to normalcy in the bond market is a positive sign that the economy is on the upswing.
Takeover activity appears to be chugging along, despite the recent rise in rates. Chicago Mercantile Exchange Holdings Inc. Thursday offered to pay a special dividend of $485 million to CBOT Holdings Inc. shareholders in addition to its $10.19 billion takeover offer. CBOT, the parent company of the Chicago Board of Trade, gained $3.31 to $204.81, and CME fell $3.76 to $547.49.
Meanwhile, investment bank Goldman Sachs Group Inc. said its fiscal second-quarter earnings edged higher on investment banking revenue, but a slowdown in its mortgage business capped profits. The stock dipped $7.89, or 3.4 percent, to $225.75.
Bear Stearns Cos. also disappointed the market when it reported weaker-than-expected second-quarter earnings. Its chief financial officer, though, said its business of packaging and trading mortgage bonds is gradually improving. The stock rose 11 cents to $149.60.
The Russell 2000 index of smaller companies climbed 4.58, or 0.55 percent, to 837.12.
Advancing issues outnumbered decliners by nearly 2 to 1 on the New York Stock Exchange, where volume came to 1.45 billion shares, down from 1.59 billion Wednesday.