After an earnings season that produced better-than-expected results for most companies, investors have been looking for a reason to buy, and the day's economic news offered some incentive, analysts said. Weekly jobless claims fell to their lowest level in four years, while the Commerce Department announced a decline in the trade deficit in December; the two reports combined to produce a positive feeling in the stock market, analysts said.

"We started the day with very upbeat numbers ... and I think momentum has taken over," said Hugh Johnson, chairman and chief investment officer of Johnson Illington Advisors. "It doesn't take much to get the ball rolling, and once you do, you start to have a lot of investors, particularly active investors like hedge funds, jump on board."

The Dow Jones industrial average closed up 85.50, or 0.80 percent, at 10,749.61. It was Dow's best finish so far in 2005, but the index of 30 actively traded stocks was still 33 points down for the year

The broader gauges also moved higher, but remained in negative range for the year. The Standard & Poor's 500 index rose 5.02, or 0.42 percent, to 1,197.01. The Nasdaq composite index gained 0.55, or 0.03 percent, to 2,053.10.

"Overall, if you look at the market, the performance today is generally positive, with strength concentrated mainly in energy and basic material-related groups," said Michael Sheldon, chief market strategist at Spencer Clarke LLC. "The dollar has shown some weakness, and as a result we've also seen a pickup in gold-related shares, which have experienced a significant amount of selling over the past several weeks."

The U.S. dollar fell against other major currencies, and gold prices rose, sending the Philadelphia Gold and Silver Index up 3.90 percent. Crude futures climbed $1.64 to settle at $47.10 per barrel on the New York Mercantile Exchange after an international energy-market watchdog raised its forecast for daily oil demand in 2005 and said demand for OPEC crude in the first quarter would outstrip supply; the AMEX Oil Index was up 2.16 percent.

From crude oil and cars to imported wine and cheese, the U.S. appetite for foreign goods sent the trade deficit soaring last year to a record $617.7 billion — 24.4 percent above the previous record set in 2003, when the imbalance came to $496.5 billion. Exports surged 12.3 percent, the best level since 1995; imports were up even more, at 16.3 percent.

But in December, the trade deficit declined 4.9 percent to $56.4 billion. That followed a revised November shortfall of $59.3 billion — still an all-time monthly high, but down from the previously reported $60.3 billion.

Separately, the number of Americans filing new claims for unemployment benefits totaled 303,000 last week, a decline of 13,000 from the previous week, according to the Labor Department. It put new filings at their lowest level since October 2000 and underscored that the labor market is continuing to show strength.

The Dow's top performer, insurer American International Group Inc., catapulted 4.7 percent, or $3.28, to $72.59, a day after it blew past Wall Street expectations with an 11.5 percent increase in fourth quarter earnings, and record profits for the year.

Telecom giant Verizon Communications Inc. was down 2 cents at $36.04 on a report it was looking to take over MCI Corp., which has been awash in takeover speculation following SBC Communications Inc.'s $16 billion deal for AT&T Corp. Verizon recently floated an informal $6.3 billion offer for MCI, according to The Wall Street Journal, citing unidentified sources. MCI was down 40 cents at $20.46.

Health insurer Aetna Inc. rose 4.2 percent, or $5.43, to $133.98, after reporting a 22 percent rise in fourth-quarter earnings on higher premiums and fees, beating expectations. The company also declared a 2-for-1 stock split.

Sara Lee Corp. surged 4.1 percent, or 95 cents, to $23.92, after naming a new chief executive officer and announcing plans to sell or spin off business lines worth $8.2 billion in annual revenue, or 40 percent of sales. Brenda Barnes replaces Steve McMillan, who will remain chairman, as the company sharpens its focus on food, beverage and household products.

Declining issues outnumbered advancers by about 5 to 4 on the New York Stock Exchange. Preliminary consolidated volume came to 1.915 billion shares, compared with 1.921 with the number traded yesterday.

The Russell 2000 index, which tracks smaller company stocks, was up 1.10, or 0.18 percent, at 626.81.