While manufacturing activity slowed in May, high energy and materials costs drove a sharp uptick in prices paid and fueled fears that the Fed could continue lifting interest rates to contain inflation. But a downward revision to growth in first-quarter wage costs suggested prices were more subdued.

"The trend today looks like confusion to me," said Scott Merritt, U.S. equities strategist for JPMorgan Asset Management. Although tomorrow's job growth data from the Labor Department is expected to provide more clarity on the economy, Merritt said a benign report would do little to help the market's uncertainty.

"The employment report will only have an impact if it's significantly to the upside or downside," he said. "Otherwise it will create more confusion — and that's what we're going to get until (the Fed's June 28-29 meeting)."

Meanwhile, strong May sales boosted the retail sector and bolstered optimism about the consumer picture. Oil prices fell further on data showing increased domestic reserves and helped accelerate the market's advance.

The Dow climbed 91.97, or 0.82 percent, to 11,260.28. Yesterday, the Dow gained 74 points after dropping 184 points on Tuesday.

Broader stock indicators surged. The Standard & Poor's 500 index gained 15.62, or 1.23 percent, to 1,285.71; the Nasdaq surged 40.98, or 1.88 percent, to 2,219.86, returning to positive territory for 2006.

Bonds recovered from yesterday's dive, with the yield on the 10-year Treasury note down to 5.1 percent from 5.13 percent late in the prior session. The U.S. dollar was flat against other major currencies; gold prices declined to about $635 an ounce.

Overseas stock markets recouped earlier losses driven by worries that rising U.S. interest rates will choke global demand. Britain's FTSE 100 gained 0.45 percent, Germany's DAX added 0.26 percent and France's CAC-40 was higher by 0.35 percent.

Asian markets fared somewhat better, with Japan's Nikkei index edging up 0.24 percent from three-month lows. However, stocks in Hong Kong tumbled 1.34 percent, as India's Sensex plunged 3.15 percent.

Investors returned their focus to inflation data yesterday after minutes from the Fed's May 10 meeting said its inflation expectations had increased. With the Fed having said future rate hikes will depend on the economy's health, traders have been particularly mindful of any readings on economic growth and inflation.

Many on Wall Street were looking forward tomorrow's report on monthly hiring, which is considered a primary indicator of economic conditions. But analysts say the market's uneasiness was likely to persist until the Fed makes its next move at the end of June.

"At best, we will probably stabilize," said Art Hogan, chief market analyst for Jefferies & Co. "The worst case is that volatility brings us lower until we get to the next Fed meeting."

The Institute for Supply Management's manufacturing index slid 2.9 points to 54.4, but the prices paid index jumped 5.5 points to 77. And while first-quarter productivity growth was revised up to 3.7 percent, unit labor costs grew just 1.6 percent versus an initial reading of 2.5 percent, the Labor Department said.

The department added that first-time jobless claims increased by 7,000 to 336,000 last week, compared with predictions for a 9,000 decline. Elsewhere, April construction spending slipped 0.1 percent versus forecasts for a 0.1 percent gain.

Crude futures tailed off after the Organization of Petroleum Exporting Countries signaled it will not tighten current output, and government data showed another weekly increase in U.S. stockpiles. A barrel of light crude slid 95 cents to settle at $70.34 on the New York Mercantile Exchange.

Retail stocks were in focus as consumers spent freely last month despite soaring gasoline prices. Federated Department Stores Inc. added 86 cents to $73.69 on its sharply better-than-forecast May sales; JCPenney Co. also saw strong sales, lifting its stock $4.03 to $64.79.

Meanwhile, Wal-Mart Stores Inc.'s modest results sent shares down 6 cents at $48.39.

Japanese automakers once again reported outstanding May sales as domestic car companies saw languishing demand. Toyota Motor Corp. jumped $1.26 to $108.64, and Honda Motor Co. added 41 cents to $33.44, while General Motors Corp. slid 5 cents to $26.88.

Food producer H.J. Heinz Co. posted a 19 percent drop in quarterly profit and said it plans to slash 2,700 jobs and close 15 plants to cut costs. Heinz rose 3 cents to $42.38.

Advancing issues outpaced decliners by almost 4 to 1 on the New York Stock Exchange, where preliminary consolidated volume of 2.49 billion shares trailed the 2.73 billion shares that changed hands yesterday.

The Russell 2000 index of smaller companies gained 15.49, or 2.15 percent, to 736.50.