Analysts said investors were becoming more optimistic after a week of good news from General Electric to Advanced Micro Devices, despite yesterday's steep decline. A belief that stocks were oversold after hitting multiyear lows last week is adding to the good mood.

"I think economy-wise the worst days have passed," said Stuart Freeman, chief equity strategist for A.G. Edwards & Sons. "We are very likely in a phase where stocks are catching up from the bottoming of the economy several quarters ago."

The Dow Jones industrial average climbed 239.01, or 3 percent, to close at 8,275.04, according to preliminary calculations, more than wiping out yesterday's drop of 220 points. Since Oct. 9, blue-chip stocks have surged 988.77 points.

The broader market also finished sharply higher. The Nasdaq composite index rose 39.87, or 3.2 percent, to 1,272.29. The Standard & Poor's 500 index gained 19.18, or 2.2 percent, to 879.20.

IBM rose $7.30, or 11.3 percent, to $72.20. Late yesterday, the technology giant reported third-quarter earnings that beat analysts' expectations by 3 cents a share and reaffirmed its fourth-quarter outlook, prompting Merrill Lynch to upgrade the company's stock.

Investors also took heart from a government report today showing housing construction rebounding strongly in September to a 16-year high, and shook off two other surveys indicating a dip in industrial production and a jump in jobless claims.

The Commerce Department reported that construction rose by 13.3 percent to a seasonally adjusted annual rate of 1.84 million, the highest level since June 1986.

However, the Federal Reserve said that production at the nation's factories, mines and utilities dropped by 0.1 percent in September, following a 0.3 percent drop in August. Output at factories also fell for the second month in a row, dropping by 0.3 percent.

And the Labor Department reported that new jobless claims rose last week by 22,000 to 411,000, another sign of the sluggish employment market.

Analysts said yesterday's pullback was expected after a four-day rally helped end six straight weeks of sell-offs. They remained hopeful that the market could continue its advance with more third-quarter earnings reports, which overall are expected to beat expectations.

Still, analysts acknowledged lingering uncertainties about the strength of the economic recovery as well as a possible war with Iraq. Yesterday's selling intensified after President Bush signed a congressional resolution allowing him to use force against Iraq.

Today, Advanced Micro Devices jumped 84 cents, or 24.1 percent, to $4.33, after the computer maker said it expected sales to improve significantly in the fourth quarter.

Eastman Kodak rose $2.09 to $32.44 after the film company raised its third-quarter outlook, citing improved performance from cost cuts.

Losers included Sears, which fell $10.75, or 31.7 percent, to $23.20, after reporting a 26 percent decline in third-quarter earnings that missed analysts' expectations. The retailer also reduced its outlook for the rest of the year, citing uncollectible credit-card debt.