Investors were also encouraged by a decline of nearly $2 a barrel in oil prices, which alleviated another source of persistent concern, and Dow component Hewlett-Packard Co. turned in a solid earnings report.

Despite the pronounced upturn, however, it was not clear that the market had completely shaken off the lingering worries about inflation and rising interest rates that have dogged it over the past several weeks.

Investors focused on the consumer price index data released early today, particularly after a report yesterday showed an unexpected spike in prices at the wholesale level, which had put a damper on stocks early in yesterday's trading.

Todd Leone, head of listed trading SG Cowen & Co., said that while investor sentiment has been positive over the past few days, especially with falling oil prices and a favorable reading on consumer inflation, "people are cautious."

"It's been a very tough market," Leone said. "It seems like we've done this before — It's rallied and then sold off again. I'd like to see a sustained rally before we get too excited, say getting to 11,000. And I don't see that happening until the Fed stops raising rates."

The Dow rose 132.57, or 1.28 percent, to close at 10,464.45 after rising more than 191 points over the previous two days.

Broader stock indicators also advanced. The Standard & Poor's 500 index closed up 11.76, or 1.00 percent, at 1,185.56 and the Nasdaq composite index rose 26.50 or 1.32 percent, to 2,030.65.

It was the highest level for the Dow and the S&P 500 since April 12, and the highest level for the Nasdaq since March 15. The last time all three indexes posted three consecutive days of gains was Feb. 23-25.

The Labor Department reported before the market opened that the consumer price index, the most closely watched barometer of inflation, rose 0.5 percent in April, led by higher energy and food prices.

But without the swings in those two volatile price categories, inflation in what's known as core prices was flat in April, a major improvement from March, when that measure shot up by 0.4 percent, its largest gain in more than two years.

Jeff Kleintop, chief investment strategist for PNC Financial Services Group in Philadelphia, said the CPI reading reassured investors that the Federal Reserve's credit-tightening program was keeping inflation in check.

"The buyer's strike might be over," Kleintrop said, referring to the slump that plagued the market during April and early this month. "Investors have been very pessimistic lately. There have been a lot of concerns about inflation, economic sluggishness and earnings growth decelerating. I think we're starting to move past that."

Prices for crude oil fell after government data showed U.S. commercial oil stocks rose last week to their highest level in six years, topping analysts' exepectations. Futures for light sweet crude oil fell $1.72 to settle at $47.25 a barrel on the New York Mercantile Exchange.

"The market was oversold a couple weeks ago, and now we're seeing relief on the two things keeping the market down: rates and oil," said Russ Koesterich, senior portfolio manager at Barclays Global Investments in San Francisco.

"The nice thing about the inflation data is that it shows that higher prices aren't getting passed on to the consumer," Koesterich said.

Hewlett-Packard rose $1.00 or 4.6 percent, to $22.55 after the computer maker reported a slight increase in earnings after the market closed yesterday, edging past Wall Street's estimates.

Panera Bread Co. jumped $5.85 or 10.9 percent to $59.43 after the sandwich chain raised its forecast for full-year earnings and posted a 47 percent surge in first quarter earnings.

Delta Air Lines Inc. rose 29 cents or 9.6 percent to $3.30 after J.P. Morgan upgraded the stock, saying it doubts the troubled airline will file for bankruptcy this year, as the market seemed to be expecting.

PalmOne Inc. rose 46 cents, or 1.8 percent, to $25.69 after the company said it would release its new LifeDrive mobile manager in significant quantities in June.

Advancing issues outnumbered declining ones by a 3-to-1 ratio on the New York Stock Exchange, where preliminary consolidated volume came to 2.28 billion shares, compared to 1.9 billion traded yesterday.

The Russell 2000 index of smaller companies was up 12.61, or 2.12 percent, at 607.88.