"The market is a little stretched, so you're going to see some backing and filling," said Steven Goldman, chief market strategist with Weeden & Co. in Greenwich, Conn. "Today, after pulling back, you're seeing no signs of exhaustion."

The Nasdaq composite index closed up 32.49, or 2.4 percent, to 1,409.08, according to preliminary calculations. The Nasdaq last finished above 1,400 on July 8. Today's finish was the Nasdaq's best since July 5 when it stood at 1,448.36.

The market's other major gauges were also higher. The Dow Jones industrial average climbed 84.95, or 1 percent, to 8,957.02, after falling 118 yesterday. The blue chip index has rebounded more than 1,200 points since hitting a low of 7,702.34 on July 23.

The Standard & Poor's 500 index advanced 11.91, or 1.3 percent, to 949.34.

Investors have been generally upbeat after two straight weeks of gains among the three major indexes. A lack of major negative news so far this week has also helped stocks move higher. Despite yesterday's decline amid profit taking, the market's indexes have netted gains so far for the week.

But analysts said stocks are still vulnerable to profit-taking, particularly when companies start issuing third-quarter profit warnings later this month and in early September.

"We had a recent run-up in the market that was impressive," said Alan Ackerman, executive vice president at Fahnestock & Co. "It appears that a sustainable advance may take time to develop."

Technology got a boost from Internet Security Systems, which rose 74 cents to $18.16 following an upgrade from the investment firm Raymond James.

And, despite forecasting a third-quarter loss, chip equipment maker Newport Corp. rose 75 cents to $19 after announcing it will lay off between 225 and 275 employees.

Tech bellwethers were also strong with Microsoft rising $1.24 to $52.28 and Intel advancing 59 cents to $19.56.

The market also owed part of its advance to specialty retailers that posted better-than-expected earnings. Gymboree rose $1.45 to $16.35, and Talbots climbed 89 cents to $33.20. On the downside, however, RadioShack fell 16.4 percent, down $4.74 at $24.21, after lowering its third-quarter earnings and sales outlook.

Brokerage stocks were weak following a downgrade by Salomon Smith Barney. Lehman Brothers dropped $2.20 to $58.98, and Bear Stearns fell 33 cents to $65.79.

The Russell 2000 index, the barometer of smaller company stocks, rose 8.94, or 2.3 percent, to 406.78. Advancing issues outnumbered decliners 2 to 1 on the New York Stock Exchange, where volume was light.

Overseas, Japan's Nikkei stock average finished up 0.2 percent. In Europe, France's CAC-40 advanced 1.3 percent, Britain's FTSE 100 slipped 0.1 percent, and Germany's DAX index climbed 2.6 percent.