"The data were in sharp contradiction to expectations of an impending recession," said analysts at Action Economics.
Yet nerves continued to be rattled by developments tied to subprime trouble and the resulting credit crunch, with the major indexes shaving gains after Moody's Investors Service warned bond insurer MBIA Inc. might be more likely to face a capital shortfall than previously thought.
Up more than 200 points in the final 30 minutes of trade, the Dow Jones Industrial Average was more recently ahead 193.3 points, or 1.5%, to 13,441, with 29 of its 30 components trading higher.
American International Group Inc. fronted the Dow's advance, its stock up 4.7% after the insurance giant's CEO tried to reassure investors about the company's exposure to subprime mortgage losses. .
Intel Corp. also joined blue chips on the rise, recently up 4%, after the chip giant's stock drew an upgrade on expectations of a robust personal computer market in 2008. .
The S&P 500 gained 21.04 points, or 1.4%, to 1,483.83, while the technology-heavy Nasdaq Composite advanced 43.04, or 1.6%, to 2,662.27.
The Wall Street Journal reported Wednesday afternoon that an FDA advisory panel has recommended the agency not approve Genentech Inc.'s drug Avastin to treat advanced breast cancer. Shares of Genentech fell 9% before being halted.
On the New York Mercantile Exchange, crude-oil futures erased earlier gains and closed below $88 a barrel after the Organization of Petroleum Exporting Countries opted to keep production as is and crude inventories in the U.S. fell to near two-year lows. .
Volume on the New York Stock Exchange topped 1.2 billion shares, with advancing stocks ahead of those declining nearly 3 to 1, while volume on the Nasdaq neared 2 billion, and advancing stocks topped decliners, by more than 9 to 5.
Ahead of the opening bell, major stock index futures had extended early gains after ADP reported hiring in the private sector expanded at a faster pace in November, gaining 189,000 after a revised 119,000 jump in October. The latest monthly hike is well above forecasts calling for a rise of 60,000.
"While the ADP report is notoriously volatile and not necessarily a good indicator for Friday's payroll data, it flies in the face of the notion that the economy is teetering on the brink of recession, said Frederic Ruffy, analyst, Optionetics.
In a separate report, the Labor Department said productivity in the nonfarm business sector rose at a 6.3% annual rate in the third quarter, an upward revision from the 4.9% tally a month ago.
And, in a signal of milder inflationary pressure than previously thought, the government revised unit labor costs down, showing a 2% annual decline compared to a 0.2% drop estimated a month ago. .
In a later report, the Commerce Department said orders for U.S.-made factory goods climbed 0.5% in October, its biggest increase in three months. .
The Institute for Supply Management said its nonmanufacturing index declined to 54.1% in November from 55.8% in October, with the drop larger than expected.
"The economic news that we got today was quite positive. We saw factory orders go up; we saw the non-manufacturing sector continue to grow," said Peter Cardillo, chief market economist at Avalon Partners. .
On Wednesday, the Reserve Bank of Australia didn't cut interest rates, as the Bank of Canada did Tuesday, but it did sound a more dovish tone. "Sentiment in global credit markets has deteriorated recently after an earlier improvement and prospects for growth in the major economies appea to be weakening," the Aussie central bank said.
The Bank of England and the European Central Bank will make rate decisions on Thursday, with the U.K. central bank under increasing pressure to cut rates after data released showed measures of house prices, consumer confidence and services sector falling.
European shares snapped a two-day losing streak as many economists penciled in an imminent rate cut for the U.K. .
In Asia, several markets rebounded to end higher amid bargain-hunting. .
On Thursday, Treasury Secretary Henry Paulson will hold a press conference to detail the Bush administration's plan to help borrowers with their subprime mortgages.
By Kate Gibson