The day began with better-than-expected earnings reports. Lennar Corp.'s orders for new homes jumped 63 percent during the second quarter and its revenue beat expectations.
And retailers gained following a report from Bed Bath & Beyond Inc. The home furnishings store said its fiscal first-quarter earnings climbed 14 percent as sales rose following the liquidation of rival Linens N Things.
Stocks extended their advance after Federal Reserve Chairman Ben Bernanke fended off accusations before a House committee that he pressed Bank of America Corp. to acquire Merrill Lynch in a deal that cost taxpayers $20 billion. Analysts said his handling of the questions made it less likely he would resign before his term expires early next year.
The third successful Treasury auction of the week helped boost confidence that Washington will be able to raise enough money to fund its economic recovery programs. Investors also applauded the Fed's announcement that it would let expire some of the emergency lending programs it set up last fall as the financial crisis intensified
Trading is expected to remain volatile throughout the summer months, which are typically marked by light volume that can skew movements in the market. Friday could bring heavier-than-normal volume because of the annual reconstitution of the Russell 3000 index at the end of the day's trading. Investors who track indexes will have to buy and sell hundreds of stocks to match the new makeup of the indexes.
Investors on Thursday were relieved to see the announcement that the Fed will allow a program for supporting money market mutual funds to lapse by the end of October. The central bank's decision, along with reductions in the amount it will lend to banks under two others, is a sign the financial system is stabilizing. The Fed is extending five other programs.
On Wednesday, the Fed said it expects the economy will slowly resume growth and that inflation should remain in check.
Government bond prices jumped Thursday after an auction for $27 billion in seven-year notes drew strong demand.
Most auctions have been attracting solid demand this year, but investors remain cautious. If demand wanes, the government will have to boost yields to attract buyers.
The yield on the benchmark 10-year Treasury note jumped, pushing its yield down to 3.54 percent from 3.69 percent late Wednesday.
Ron Sweet, vice president of USAA Investment Management Co., said the Treasury auction and the resulting drop in yields was a relief because it could reduce borrowing costs.at
"Hopefully mortgage rates will be coming down," he said.
Among homebuilders, Lennar soared $1.37, or 17.5 percent, to $9.19, while Toll Brothers Inc. rose 85 cents, or 5.2 percent, to $17.09.
Bed Bath and Beyond gained $2.69, or 9.5 percent, to $31.08.
Other retailers rose. Home Depot Inc. advanced 89 cents, or 3.9 percent, to $23.57, and J.C. Penney Co. rose $1.60, or 6 percent, to $28.20.
More than four stocks rose for every one that fell on the, where consolidated volume came to 4.9 billion shares compared with 4.7 billion shares Wednesday.
Crude oil rose $1.56 to settle at $70.23 a barrel on the New York Mercantile Exchange.
The dollar was mixed against other major currencies. Gold prices rose.
In other trading, theof smaller companies rose 14.23, or 2.9 percent, to 509.18.
Overseas, Britain's FTSE 100 fell 0.6 percent, France's CAC-40 lost 0.7 percent. Japan's Nikkei stock average rose 2.2 percent.fell 0.7 percent, and