The Dow saw its biggest point gain since July 19, 2006, and more than made up for a plunge a day earlier that was fueled by the benchmark 10-year Treasury note yield's surge to five-year highs. Rising bond yields amid inflation concerns had been pummeling stocks since last week.
Though rate worries still dog investors, their confidence perked up after the Commerce Department said Wednesday that retail sales jumped 1.4 percent in May. The rise, which followed a 0.1 percent decline in April, was the highest in 16 months and double the increase analysts expected. It signaled to the stock market that consumers plan to keep spending and pushing the economy along, even as gas prices and other costs increase.
Investors were also pleased about the Federal Reserve's Beige Book report, which said the U.S. economy kept expanding at a moderate pace in the first part of the second quarter, and that various regions around the United States "did not indicate an increase in overall price pressures." The central bank's next meeting on interest rates will be held in two weeks.
Though the strong economic snapshots inspired buying Wednesday, market watchers noted that an uptick in growth may raise the chance of a rate hike later this year, and that bonds are still trading near multi-year highs.
"This is a classic demonstration of the market's continuing denial of risk," said Robert Brown, chief investment officer at Genworth Financial Asset Management, contending that while the economic news is generally favorable, investors aren't pricing in adequate amounts of risk. "It wants to ignore the negative news and focus solely on the positive.
"It wants to go up and it has the fuel to do it."
The Dow jumped 187.34, or 1.41 percent, to 13,482.35, after bouncing around earlier in the session as investors weighed the possibility of rising interest rates. The index is still 193.97 points, or 1.41 percent, below its record close of 13,676.32 reached June 4.
Broader stock indicators also advanced sharply. The Standard & Poor's 500 index rose 22.67, or 1.52 percent, to 1,515.67, and the Nasdaq composite index rose 32.54, or 1.28 percent, to 2,582.31.
The S&P 500 and Nasdaq indexes both saw their largest point gains since March 21.
Bond yields spiked early Wednesday before falling back as investors re-entered the market to take advantage of low prices, which move in the opposite direction of yields. The yield on the benchmark 10-year Treasury note slipped to 5.21 percent from 5.295 percent Tuesday.
Rising oil prices didn't upend the stock market's gains. Light, sweet crude climbed 91 cents to $66.26 per barrel after the government reported that U.S. crude oil stocks increased by a modest 100,000 barrels last week, while gasoline inventories were flat. Investors had expected stores of gasoline would rise.
The dollar was mixed against other major currencies, and gold prices slipped.
In other economic news, the Labor Department said U.S. import prices rose a higher-than-expected 0.09 percent in May, the third consecutive monthly increase, as costs rose for food, energy and automobiles.
Also, the Commerce Department reported that U.S. businesses added to their stores of unsold goods in April at a faster-than-expected pace. The increase could suggest businesses are ending efforts to draw down their inventories in the face of a slowing economy.
Last week, investors regarded inflation levels that appeared defiantly above the Fed's comfort level as a sign that the central bank wouldn't cut short-term interest rates. As yields move in the opposite direction of bond prices, market interest rates soared. The 10-year Treasury yield climbed above 5 percent for the first time since last summer.
Hank Herrmann, chief executive of Waddell & Reed, contends that June should provide a more accurate reflection of the state of the economy and that data due Thursday and Friday on inflation could weigh heavily on the markets.
"If they come out negative we'll probably see another sell-off in both bonds and stocks," he said, referring to the inflation figures.
In corporate news, Blockbuster Inc. rose 32 cents, or 8.1 percent, to $4.27 after a Citigroup analyst praised the company's plan to offer less expensive online rentals.
Of the 500 stocks in the S&P 500 index, just 27 fell. Only one of the 30 Dow component companies slipped — telecommunications company Verizon Communications Inc., which fell 18 cents to $42.90.
Advancing issues outnumbered decliners by more than 4 to 1 on the New York Stock Exchange, where volume came to 1.59 billion shares, down slightly from 1.61 billion shares Tuesday.
The Russell 2000 index of smaller companies rose 10.82, or 1.32 percent, to 832.54.
Overseas, Japan's Nikkei stock average fell 0.16 percent; Britain's FTSE 100 rose 0.60 percent, Germany's DAX index gained 0.03 percent, and France's CAC-40 rose 0.61 percent. In China, the often-volatile Shanghai Composite Exchange rose 2.6 percent.