Encouraging news on workers' productivity also galvanized investors.

The Dow Jones industrial average jumped 203.82 points, or 2.1%, to 10,005.96, while the Nasdaq composite index rose 49.80, or 2.4%, to 2,105.32 after Cisco, the maker of computer-networking gear, predicted its revenue would grow. The Standard & Poor's 500 index rose 20.13, or 1.9%, 1,066.63.

The Labor Department said initial claims for jobless benefits fell to 512,000 last week, lowest since January. Economists had expected 523,000 new claims.

Initial claims are considered a gauge of the pace of layoffs and an indication of employers' willingness to hire workers. The report offered investors hope that the government's monthly report on employment Friday might prove better than expected. Analysts project that the unemployment rate rose to 9.9% in October.

Investors also cheered the biggest jump in productivity in six years. The government said the amount of output per hour worked rose 9.5% in the July-September quarter. Getting more from each worker could make companies put off hiring workers but the lower costs will boost profits as the economy recovers.

Meanwhile, retailers posted their second straight month of sales gains in October after more than a year of declines, providing hope that consumers are starting to spend a little more. The retail industry posted a 2.1% sales gain for October, according to a International Council of Shopping Centers-Goldman Sachs tally.

"The news coming in has been for the most part better than expected," said Mike Boyle, senior vice president and portfolio manager at Advisors Asset Management.

Bond prices were mixed. The benchmark 10-year Treasury note fell, pushing its yield up to 3.54% from 3.53% late Wednesday.

Mixed economic data in recent weeks have made it difficult for investors to get a sense of where the economy is headed, leading to choppy trading. The Federal Reserve pointed to hopeful signs about the economy Wednesday but also said it would keep interest rates low for "an extended period" to help stimulate growth.

Traders initially cheered the Fed's assessment of the economy on Wednesday, building on momentum stoked by better reports on activity in the service sector and private sector employment. Stocks failed to hold the advance, however, and the Dow finished with a gain of about 30 points, having risen as much as 156 points after the Fed announcement.

While the market often jumps at good news, it has become more difficult for the gains to stick. Investors can't shake the fear that government stimulus programs have become a crutch for the economy and that the 3.5% growth in the third quarter won't be sustainable as stimulus measures are removed.

Jeff Mortimer, chief investment officer at Charles Schwab Investment Management, predicts the choppiness to last at least through the end of the year.

"This is a transition period in a bull phase," he said. "Bull markets are front-end loaded and they give almost 50% of their return in their first one year of life."

The dollar fell against other major currencies. Gold prices rose.

Light, sweet crude fell 78 cents to $79.62 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 18.03, or 3.2%, to 581.15.

Overseas, Asian markets fell overnight, while European shares recovered from early losses in afternoon trading and moved higher after central banks left their interest rates unchanged. The Bank of England also said it would pump more money into the economy after news last week that the country remains in recession.

Britain's FTSE 100 rose 0.4%, Germany's DAX index added 0.7%, and France's CAC-40 gained 1.1%. Earlier Thursday, Japan's Nikkei stock average fell 1.3%.