Although the day's data gave mixed signals on economic growth, investors again brushed aside worries about inflation and interest rates following a month of selling that pulled the Dow down more than 8 percent. The Dow jumped 110 points yesterday as investors came to terms with the likelihood that the Federal Reserve will hike rates later this month.

The market turned sharply higher today after Fed Chairman Ben Bernanke said record energy and commodity prices could account for some of the recent uptick in core prices but that inflation expectations have remained within historical ranges.

Despite recent signs of a slowing economy, analysts say inflationary pressures remain a risk and that higher interest rates could put a serious dent in economic growth. The Fed has said it would sacrifice growth to keep prices from rising.

"This looks mostly like a continued part of the rebound from the big selloff," said Ed Peters, chief investment officer at PanAgora Asset Management. He noted that the rally may have been driven by short sellers buying stocks to cover their positions following weeks of declines.

The Dow jumped 198.27, or 1.83 percent, to 11,015.19, finishing above the 11,000 mark for the first time since June 6. After shedding 186 points on Monday and Tuesday to fall into the red for the first time this year, the Dow saw its best two-day run since April 2003 and the index is now back in positive territory for 2006.

Broader stock indicators also saw strong gains. The Standard & Poor's 500 index gained 26.12, or 2.12 percent, to 1,256.16, and the Nasdaq composite index surged 58.15, or 2.79 percent, to 2,144.15.

Bonds slumped as stocks rose, with the yield on the 10-year Treasury note rising 5.10 percent from 5.06 percent late yesterday. However, the continued inversion of short- and long-term yields signaled investor expectations of a slowing economy.

Wall Street's recovery led overseas stock markets higher. Japan's Nikkei stock average gained 1.13 percent; Britain's FTSE 100 added 2.04 percent, Germany's DAX index climbed 2.19 percent and France's CAC-40 was higher by 2.36 percent.

Crude futures saw another day of gains after the government reported a larger-than-expected drop in U.S. oil reserves as refineries stepped up output to meet summer gasoline demand. A barrel of light crude added 36 cents to settle at $69.50 on the New York Mercantile Exchange.

The U.S. dollar drifted slightly lower against the Japanese yen and was flat versus European currencies. Gold prices advanced to about $570 an ounce.

Despite two days of sturdy gains, some analysts were skeptical about whether Wall Street has finally reversed course. Stocks are expected to remain volatile until the Fed issues its opinion on the economy's health at the June 28-29 policy meeting.

"I think the market is trying to look beyond any day's set of numbers and the next Fed comment and try to get a real assessment of how this inflection point in the economy is going to play out," said Jerry Webman, chief economist of Oppenheimer Funds. "The crosswinds are blowing in different directions — the question is how far they're going to push us."

In economic news, the Fed said May industrial production fell 0.1 percent, below estimates for a 0.2 percent rise and down sharply from a 0.8 percent jump the month before. The central bank also said capacity utilization dipped slightly to 81.7 percent.

Other reports showed mixed readings on regional manufacturing in June. The Federal Reserve Bank of New York's Empire State index surged to 29 from 12.9 the month before, while the Federal Reserve Bank of Philadelphia said manufacturing activity slowed to 13.1 from 14.4 in May.

The Labor Department also said first-time jobless claims dipped by 8,000 to 295,000 last week, although analysts maintained expectations for the job market to weaken in the coming months.

In corporate news, Microsoft Corp. slipped 11 cents to $21.96 in after-hours trading as the software giant said co-founder and Chairman Bill Gates plans to step away from day-to-day duties by July 2008 to focus on charitable work at his foundation. Microsoft shares closed up 19 cents, or 0.9 percent, at $22.07 prior to the announcement.

Bear Stearns' quarterly profit grew 83 percent to easily beat Wall Street estimates, lifted by strength in equity trading and fixed-income revenue. Bear Stearns swelled $7.36 to $131.56.

Goldman Sachs Group Inc., which on Tuesday also posted outstanding earnings, boosted its offer for Associated British Ports Holdings PLC to about $4.8 billion, which was matched by Australia-based Macquarie Bank Ltd. in an intensifying bidding war. Goldman Sachs gained $5.62 to $144.12.

Advancing issues topped decliners by more than 4 to 1 on the New York Stock Exchange, where preliminary consolidated volume of 2.89 billion shares led the 2.81 billion shares that changed hands yesterday.

The Russell 2000 index of smaller companies surged 23.96, or 3.54 percent, to 701.05.