Investors reacted decisively after the Bush administration declared this afternoon that China may be using its monetary policies to unfairly affect trade. The Dow jumped 70 points higher in just 23 minutes, finishing with a two-day gain of 191, and the Nasdaq composite index climbed past the 2,000 mark for the first time in more than a month.

The market began the day lower after the Labor Department's Producer Price Index showed higher-than-expected increases in wholesale prices. With the counterpart Consumer Price index due before tomorrow's session, analysts warned that Wall Street's late rally could be short-lived.

"It's encouraging to see these kind of gains two days in a row, and I guess I'm cautiously optimistic," said Neil Massa, an equity trader at John Hancock Funds. "But all this can be erased tomorrow with one number."

The Nasdaq gained 9.72, or 0.49 percent, to 2,004.15, its best close since April 12.

Other indicators also moved sharply higher. The Dow rose 79.59, or 0.78 percent, to 10,331.88, after rising 112.17 yesterday. And the Standard & Poor's 500 index was up 8.11, or 0.7 percent, at 1,173.80.

The bond market advanced, with the yield on the 10-year Treasury note falling to 4.12 percent from 4.13 percent late yesterday. The dollar lost ground against other major currencies after big gains in the past few sessions, and gold prices rose.

Crude oil futures closed moderately higher, though the Treasury's stance on China helped Wall Street shrug off the increase. A barrel of light crude settled at $48.97, up 36 cents, on the New York Mercantile Exchange.

China's yuan currency is pegged to the dollar in international trading, which has made China far more competitive than the U.S. due to its lower labor and materials costs. While not outright accusing China of currency manipulation, the Treasury Department said it may do so in the future unless the Chinese government switches to a flexible exchange system.

The Treasury Department's announcement reversed a modestly down session on Wall Street. Investors' inflation fears were renewed after the Labor Department's Producer Price Index, which measures wholesale prices, rose 0.6 percent in May, more than the 0.4 percent economists expected. With volatile energy and food costs removed, so-called core PPI rose 0.3 percent, compared with the 0.2 percent expected on Wall Street.

While rising wholesale prices are seen as a possible precursor to inflation, analysts were encouraged that investors had reacted without the usual skittishness that marked trading over the past month.

"Considering the (PPI) numbers today, the market is taking it pretty well," said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. "It gives us some certainty with the Federal Reserve, since you know the Fed will continue headlong in raising rates."

The Consumer Price Index is due out before yesterday's session.

The retail sector — under scrutiny after Wal-Mart Stores Inc. last week warned of weakness in its second-quarter earnings — had a number of positive earnings reports. Home Depot Inc. beat Wall Street's profit expectations by 5 cents per share, but revenues were lower than expected and sales growth was sluggish. Home Depot, upgraded to "buy" at Deutsche Bank after its earnings were released, climbed $1.49 to $38.86.

Department store chain J.C. Penney & Co. Inc. rose $1.52 to $49.35 after it quadrupled its quarterly earnings from a year ago, citing strong gains in its online shopping division. The company beat analysts' forecasts by 2 cents per share.

Discount bulk retailer BJ's Wholesale Club Inc. saw a 16 percent gain in first-quarter profits, beating Wall Street's forecasts by a penny per share after one-time charges. The company also posted 5.8 percent sales growth in stores open at least a year. BJ's gained $1.29 to $29.59.

And office supplies retailer Staples Inc. added $1.02 to $21.56 as it posted a 27 percent rise in profits and beat Wall Street's profit expectations by a penny per share. Sales grew at a moderate pace, but the chain's North American delivery business showed surprising strength.

In other news, embattled Wall Street firm Morgan Stanley said in a regulatory filing it may have to increase its $360 million legal reserve after a Florida jury yesterday awarded $604.3 million to financier Ronald Perelman in his lawsuit against the firm. The jury could award up to $2.4 billion more in punitive damages. The firm said it would appeal. Morgan Stanley fell 14 cents to $48.66.

Advancing issues outnumbered decliners by about 2 to 1 on the New York Stock Exchange, where preliminary consolidated volume came to 1.9 billion shares, compared with 1.88 billion traded yesterday.

The Russell 2000 index of smaller companies was up 3.56, or 0.6 percent, at 595.27.

Overseas, Japan's Nikkei stock average tumbled 1.11 percent. In Europe, Britain's FTSE 100 closed up 0.29 percent, France's CAC-40 lost 0.12 percent for the session, and Germany's DAX index fell 0.24 percent.