updated 7/23/2010 7:27:03 AM ET 2010-07-23T11:27:03

Stocks had their biggest rally in two weeks Thursday as earnings and economic reports reassured investors that the recovery, while uncertain, is continuing.

The Dow Jones industrial average rose 201 points after second-quarter earnings from Caterpillar Inc., UPS Inc. and other companies beat analysts' forecasts. A better than expected report on housing and encouraging signs of growth in Europe added to the upbeat mood.

But investors might be ready to sell again when trading resumes Friday. After the close of regular trading, Amazon.com Inc. issued a report that fell short of expectations. Its stock fell almost 14 percent in after-hours trading. If the market gives back gains Friday, it would follow its pattern of falling on disappointments in what so far has been a mixed earnings season.

Major Market Indices

Microsoft Corp. also released earnings after the close of trading and beat analyst estimates. Its stock fell slightly.

Investors had plenty of reasons to buy on Thursday. Caterpillar said its orders are growing and production will pick up in the second half of the year. UPS raised its outlook because of spending by businesses. Caterpillar's stock rose 1.7 percent, while UPS gained 5.2 percent.

Chris Hobart, founder of Hobart Financial Group in Charlotte, N.C., said the outlooks are especially important because, if companies expect to grow, they'll need to hire again.

If improved forecasts lead to jobs growth, "then this can be better than a good quarter or good second half, (it can mean) we've got a good economy," Hobart said.

A report on the housing market, while still showing a slowdown, was reassuring because it wasn't as bad as investors expected. The National Association of Realtors said sales of previously occupied homes fell to an annual rate of 5.37 million in June from 5.66 million a month earlier. Economists forecast the sales rate to fall to 5.18 million.

The Dow rose 201.77, or 2 percent, to 10,322.30. That was the Dow's biggest advance since it rose 274 points on July 7.

The Standard & Poor's 500 index rose 24.08, or 2.3 percent, to 1,093.67, while the Nasdaq composite index rose 58.56, or 2.7 percent, to 2,245.89.

Only 397 stocks fell on the New York Stock Exchange, while 2,675 rose. Consolidated volume came to 4.9 billion shares, up from 4.8 billion on Wednesday.

Major Market Indices

Traders largely wrote off a jump in the number of people seeking unemployment benefits for the first time. The increase was likely skewed by seasonal factors. Instead, investors focused on earnings from a broad range of companies that showed businesses aren't seeing a slowdown in the recovery. News of corporate deals also lifted shares.

Meanwhile, European markets rose after a report showed unexpected growth in the 16-nation group that uses the euro. In recent months, investors worldwide have been concerned that rising government debt in Europe would stall a global recovery. A jump in Europe's purchasing managers index Thursday was a relief after forecasts of a possible recession on the continent.

The economic reports out of Europe were "a big surprise because everyone expects that to be the Achilles heel of the global economy," said Anthony Chan, chief economist at J.P. Morgan Private Wealth Management in New York.

Problems in Europe set off the big drop in stocks in late April. As Greece struggled to make debt payments and ratings agencies downgraded the government debt of several companies, stocks plunged in the U.S. on fears that the domestic recovery was in jeopardy. Stocks then fell further as U.S. economic reports showed that the recovery was at best bumpy. Some investors feared a "double dip," or the economy falling back into recession.

Overseas, Britain's FTSE 100 rose 1.9 percent, Germany's DAX index gained 2.5 percent and France's CAC-40 rose 3.1 percent. In Japan, where trading ends before it begins in the U.S., the Nikkei stock average fell 0.6 percent.

Bond prices dipped as investors jumped back into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 2.94 percent from 2.88 percent late Wednesday.

The market's gains Thursday came a day after investors sold stocks because Federal Reserve Chairman Ben Bernanke warned Congress that the economy remains fragile. Bernanke confirmed investors' fears that the best scenario for the economy is only slow growth and relatively high unemployment. Bernanke testified again before Congress on Thursday, but his comments had little impact on trading.

Guy LeBas, chief fixed income strategist of Janney Montgomery Scott in Philadelphia said there are two groups in the market fighting back and forth, which has led to the volatility. One believes the economy is going to fall back into recession, while the other thinks this is just a pause in a strong rebound.

"There's no middle ground," LeBas said. As a result, he said, each group will pounce on news that backs up their claims and send the market sharply higher or lower. "We are absolutely hypersensitive to what we're seeing."

Amazon, which rose $2.64, or 2.3 percent, to $120.07 in regular trading, slid $16.57, or 13.8 percent, after hours. Microsoft, which rose 72 cents, or 2.9 percent in regular trading, to $25.84, slipped 8 cents in after-hours activity.

Quotes delayed 15+ min.

UPS jumped $3.14, or 5.2 percent, to $63.15. Caterpillar rose $1.13, or 1.7 percent, to $68.

Homebuilders stocks rose in response to the home sales report. Hovnanian Enterprises Inc. rose 15 cents, or 3.8 percent, to $4.07. KB Home rose 41 cents, or 3.9 percent, to $11.06.

The Labor Department said weekly claims for jobless benefits jumped by 37,000 to 464,000. Economists polled by Thomson Reuters expected claims to rise to 445,000 last week. The big jump comes after a big drop a couple of weeks ago when companies like GM reported fewer temporary layoffs than usual for the time of year. Even with the distorted numbers, high unemployment remains of the biggest obstacles to a strong, sustained recovery.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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