Buying accelerated in the late afternoon, triggered by program trading related to today's quadruple-witching day, the quarterly expiration of index futures and options as well as individual stock futures and options, analysts said.

"We do have a backdrop of better economic data which is helping lift things," said Todd Clark, head of listed equity trading at Wells Fargo Securities. "But it's the forces surrounding tomorrow's expiration that are really driving the market."

The Dow closed up 102.82, or 1 percent, at 10,248.08, for a three-day gain of 225 points. It was the highest close since May 17, 2002, when the blue-chip average stood at 10,353.08. The broader market also finished higher.

The Labor Department reported yesterday that new jobless claims fell last week by a seasonally adjusted 22,000 to 353,000, the lowest level since Nov. 1. The decline was much larger than analysts' expectations.

Meanwhile, the Conference Board reported that its Composite Index of Leading Economic Indicators rose to 114.2 last month, offering hope that the economic recovery was gaining momentum. The 0.3 percent rise was in line with analysts' expectations.

And the Federal Reserve Bank of Philadelphia said its business conditions index, which measures the region's manufacturing sector, rose to 32.1 in December — up from 25.9 in November and the seventh straight month of gains.

Economists were expecting a more modest reading of 25.

Advancing issues outnumbered decliners 3 to 1 on the NYSE. Consolidated volume was heavy at 1.99 billion shares, compared with 1.83 billion traded Wednesday.