Investors embraced the Commerce Department's report that consumer spending rose 0.8 percent in June, the largest increase since April. Incomes also grew at a nice clip, which dovetailed with an improved jobs picture in June, when the unemployment rate fell to 5 percent, a nearly four-year low. Another Commerce Department report showed orders at U.S. factories rose 1 percent in June, in line with expectations.

Strong corporate earnings again drove stock prices. Earnings are on track to grow 10.74 percent for the second quarter, which would be the 13th straight quarter of double-digit earnings growth. Since the early July start of earnings season, the market has gained 3.7 percent, reversing the 1.70 percent loss for the first half of the year, according to data from Standard & Poor's.

As the market has recovered from its March 2003 lows, 84 percent of that gain has been attributable to higher corporate earnings, said David Darst, chief investment strategist of Morgan Stanley's Individual Investor Group.

"We're finally starting to see the markets wake up to the fact that the economy is in pretty good shape," said John Caldwell, chief investment strategist for McDonald Financial Group, which is part of Cleveland based KeyCorp. "Most of the data continues to be good."

The Russell 2000 index of smaller companies rose 5.71, or 0.84 percent, to an all-time high of 688.51. The record, Russell's second lifetime high in a month, comes as investors warm to the somewhat riskier stocks that make up the index.

The Nasdaq composite index rose 22.77, or 1.04 percent, to 2,218.15, its best close since June 2001. The S&P 500 index hit a new four-year high for the sixth time since July 14. The index rose 8.77, or 0.71 percent, to 1,244.12

The Dow Jones industrial average rose 60.59, or 0.57 percent, to 10,683.74.

Crude oil futures, one of Wall Street's persistent worries this summer, closed higher. A barrel of light crude settled at $61.89, up 32 cents, on the New York Mercantile Exchange.

Bonds fell, with the yield on the 10-year Treasury note at 4.34, up from 4.32 late yesterday, its highest level since April. The U.S. dollar rose against the euro. Gold prices were flat.

In company news, Unocal Corp. rose 16 cents to $64.53 after China's state-owned oil company CNOOC Ltd. withdrew its $18.5 billion offer, opening the way for Chevron Corp. to complete its planned $17.4 billion acquisition of Unocal. CNOOC rose $4.15 to $73.49; Chevron rose $1.13 to $59.56.

Marsh & McLennan Companies Inc., the nation's largest insurance brokerage, said lower earnings in its insurance services and investment management divisions as well as restructuring charges reduced profits 57 percent in the second quarter, but the results were better than analysts expected. The stock fell 40 cents to $28.56.

Manufacturing conglomerate Tyco International Ltd. slid $2.96 to $27.86 after the company issued guidance below Wall Street targets for the fourth quarter and full year. Banc of America, Merrill Lynch and Wachovia all downgraded the stock.

Comcast Corp., the nation's largest cable television operator, said second-quarter profit rose 64 percent, beating analysts' estimates. Its stock rose 39 cents to $31.

DaimlerChrysler AG rose $1.37 to $50.74 after it said U.S. sales rose by 25 percent in July and it would continue to offer employee discounts to car buyers.

Investors also liked the possibility of more executive change at the company. The Wall Street Journal reported that Eckhard Cordes, head of DaimlerChrysler AG's Mercedes Car Group, offered his resignation last week after being passed over for the company's top spot. The report, which the company refused to comment on, said Cordes sold $4.4 million in DaimlerChrysler shares after DaimlerChrysler's CEO, Juergen Schrempp, said last Thursday he would step down at the end of the year. Separately, the report said German regulators are investigating possible insider trading of the stock before Schrempp resigned.

General Motors Corp. fell 33 cents to $36.53 after the company decided to extend a discount plan that gives customers a chance to buy cars at the prices its employees pay through Sept. 6. The move reverses an earlier GM decision to end its program and matches moves by Ford Motor Co. and DaimlerChrysler AG to extend similar discounts. Ford rose 3 cents to $10.88.

Advancing issues led decliners by nearly 2 to 1 on the New York Stock Exchange where preliminary consolidated volume was 2.05 billion shares, up sharply from 1.73 billion Monday.

Overseas, Japan's Nikkei stock average fell 0.06 percent. European stocks rallied, with Britain's FTSE 100 up 0.69 percent, Germany's DAX index rising 0.86 percent, and France's CAC-40 up 1.04 percent.