Updated

The Standard & Poor's 500 index reached its highest close in three years and the Nasdaq Composite index rose to a 7-month high Thursday as investors welcomed the Federal Reserve's upbeat assessment of the U.S. economy and another slide in crude prices.

The Dow Jones industrial average (search) jumped 84.36, or 0.81 percent, to 10,469.84, its best closing level since June 23. The Standard & Poor's 500 Index (search) advanced 10.57 points, or 0.91 percent, to close at 1,173.48, its highest close since August 2001. The technology-laced Nasdaq Composite Index (search) gained 26.71 points, or 1.31 percent, to end at 2,061.27, its highest close in seven months.

"The biggest thing now is that there are few money managers that want to be left out of the seasonal strength that November, December and January have," said Paul Cherney, chief market analyst at Standard & Poor's.

Stocks have been on an upward path since the election. The Dow has now rallied about 7 percent from its 2004 low hit in October and is up 0.15 percent for the year -- returning to positive territory for the year to date for the first time since June. The Nasdaq is up 2.89 percent so far in 2004, and the S&P 500 is up 5.54 percent for the year to date.

The Russell 2000 Index (search) closed at 616.30, an all-time high, eclipsing its previous record of 614.16, on March 10, 2000, the day the Internet bubble burst.

Tech stocks rose despite disappointment with Cisco Systems Inc.'s (CSCO) quarterly report. While profits were in line with Wall Street expectations, revenues failed to meet analyst forecasts, leading some to worry about future sales strength. Cisco nonetheless gained 4 cents to $18.48.

Microsoft (MSFT) helped the major indexes as it touched a 2-1/2-year high, reaching $30.08, a day after it unveiled a preliminary version of its Web search engine, in its first attack on Google Inc.'s (GOOG) leading position in the market. Microsoft rose 25 cents to close at $29.98 on Nasdaq. Google jumped 9 percent, or $15.16, to end at $183.02.

International Business Machines Corp. (IBM), the world's biggest computer maker, gained 1.3 percent, or $1.18, to $94.79, and gave the Dow a boost.

Despite the solid advance, trading was muted somewhat as the bond markets closed for the Veterans Day (search) holiday. Bonds can have an impact on stock trading, and some analysts questioned whether Thursday's rally would set the stage for further highs.

"You have to take today's action with a grain of salt, what with bonds not trading today, but sure, it's nice to see things moving up," said Bryan Piskorowski, market analyst at Wachovia Securities. "But really, with the jobs report last week and the Fed move, the market's still treading water, and we're going to need another catalyst to break out higher."

Wall Street saw no surprises in Wednesday's Fed policy statement, and investors were encouraged by the Fed's assessment of the improving labor market. The Fed raised the benchmark interest rate a quarter percentage point to 2 percent, as was widely expected.

Falling oil prices also spurred buyers. U.S. light crude A barrel of light crude was quoted at $47.42, down $1.44, on the New York Mercantile Exchange (search), more than $8 below the record of $55.67 struck in late October, on signs of strong supplies. Record high oil prices has been a drag on the stock market, with investors worried that soaring energy costs would pinch corporate profits and curb consumer spending.

After the closing bell, shares of Dell Inc. (DELL) initially rose 20 cents to $37.45 and then gave that up to trade at $37.25, after the world's largest personal computer maker reported a higher quarterly profit. Dell said its results were helped by gains in market share and lower component costs despite slowing demand for corporate PCs. During the regular session, Dell's shares shot up 1.09 percent, or 40 cents, to $37.25 on Nasdaq.

Intel Corp.(INTC), the world's largest computer chip maker, rose 1.4 percent, or 31 cents, to $23.17 after UBS raised its 12-month stock price target to $28 from $25, saying Intel chips should see increased performance in the second half of 2005.

EBay (EBAY), the world's largest online marketplace, rose nearly 4 percent, or $4 to $107.84 after it said it was buying Marktplaats.nl, the Dutch classified advertising Web site.

S&P component Advanced Micro Devices Inc. (AMD), up 7 percent, or $1.30 at $18.59 after Merrill Lynch raised its rating to "buy" from "neutral."

But PeopleSoft Inc. (PSFT) fell 1.6 percent, or 36 cents, to $22.43 a day after its board again unanimously rejected Oracle Corp.'s (ORCL) $8.8 billion hostile tender offer. Oracle slipped almost 2 percent, or 24 cents, to $13.14.

Coca-Cola Co. (KO), a Dow component, said it was cutting back its long-term sales and profit targets, due to sales slumps in key markets, including Germany, North America and the Phillipines. Coca-Cola lost 11 cents to $40.96.

Retailer Target Corp. (TGT) shed 21 cents to $50.77 after it announced earnings in line with Wall Street forecasts. Target saw a 78 percent jump in third quarter earnings, but much of the gains were fueled by the sale of its Mervyn's department store unit.

In other merger news, Hollywood Entertainment Corp. (HLYW), owner of the Hollywood Video rental chain, surged $1.13, or 11.5 percent, to $10.93 as rival Blockbuster Inc. (BBI) launched a $700 million takeover bid. Blockbuster said it would be willing to pay $11.70 per share for Hollywood. Blockbuster rose 82 cents to $8.20 on the news.

Starbucks Corp. (SBUX) saw a 49 percent rise in its quarterly earnings, but disappointed investors with a future profit outlook that came in below expectations. Starbucks dropped $1.66 to $53.63.

Trading was active, with 1.4 billion shares changing hands on the New York Stock Exchange, matching the 1.4 billion daily average for last year. About 1.78 billion shares were traded on Nasdaq, above the 1.69 billion daily average last year.

Advancers outnumbered decliners on the NYSE by a ratio of 3 to 1, and on Nasdaq, by 2 to 1.

Overseas, Japan's Nikkei stock average tumbled 1.35 percent. In Europe, Britain's FTSE 100 closed up 0.9 percent, France's CAC40 gained 1.29 percent for the session, and Germany's DAX index rose 1.02 percent.

Reuters and the Associated Press contributed to this report.