Analysts attributed to the rally to momentum and increasing optimism.

"The technical (investor) types are jumping on board, because the market averages are making news highs," said Larry Wachtel, market analyst at Prudential Securities.

For much of the day, the market moved unsteadily, rising initially but then dipping lower before recovering in the afternoon. Analysts blamed the market’s meandering on the fact that stocks have been rallying for nearly six months, trading well above the lows they hit in mid-March.

"The market anticipated most of that (positive data) earlier in the year," said Matt Brown, head of equity management at Wilmington Trust.

Shaking off an early loss of 6.15, the Nasdaq jumped 31.03, or 1.7 percent, to 1,841.48, its fifth straight gain. The Nasdaq hasn’t seen a higher closing level since April 1, 2002, when it finished at 1,862.62.

The Dow rose 107.45, or 1.1 percent, at 9,523.27, its highest closing level since June 19, 2002, when the blue-chip average stood at 9,561.57.

The Standard & Poor’s 500 index advanced 13.98, or 1.4 percent, to 1,021.99. The last time the S&P stood higher at the end of the day was June 18, 2002, when it was at 1,037.14.

The Dow’s biggest winner was IBM Corp., which soared $3.75 to $85.76 after Goldman Sachs upgraded computer hardware stocks. Dell Computer Corp., included in that upgrade, rose 97 cents to $33.59.

Goldman Sachs also raised its rating on software makers, which lifted Microsoft Corp. by 74 cents to $27.26 and PeopleSoft Corp. by 62 cents to $18.67.

The upgrades appeared to offset some early selling on doubts created by an economic report.

The Institute for Supply management reported that its index tracking activity in the manufacturing sector rose in August for the second consecutive month. But the incremental improvement got a lukewarm reception from investors.

Wall Street was also unhappy with a poor showing in the report for employment in the manufacturing sector, suggesting that a recovery in that key area of the economy may be some ways off.

Analysts cautioned against reading too much into today’s rally, noting that it was on light trading volume and was driven more by momentum than improving economic fundamentals, especially where tech was concerned.

"Tech sometimes has a life of its own on a momentum basis," Brown said. "As that happens you need to watch valuations."

Outside technology, shares of Vivendi Universal SA climbed $1.35 to $18.25 and General Electric Co.’s NBC rose 87 cents to $30.44 on news the companies were in exclusive talks over the sale of Vivendi’s entertainment assets.

Advancing issues outpaced decliners nearly 3 to 1 on the New York Stock Exchange. Volume was light. U.S. markets were closed yesterday for Labor Day.

The Russell 2000 index, which tracks smaller company stocks, rose 10.08, or 2 percent, to 507.50.