NEW YORK (CNNMoney.com) - The Dow industrials and the S&P 500 surged to their highest levels in nearly five years Wednesday, after a bullish read on the economy sparked a broad stock market rally.

The Dow Jones industrial average (up 58.43 to 11,209.77, Charts) gained 0.5 percent and the Standard & Poor's 500 (up 5.54 to 1,303.02, Charts) index rose 0.4 percent to heights the indexes haven't seen since May 22, 2001.

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The Nasdaq composite (up 15.94 to 2,311.84, Charts) added about 0.7 percent, lifted by strength in computer hardware and computer networking gear makers.

Stocks dawdled through the morning, but gained strength following the mid-afternoon release of the "beige book." The periodic survey of the Fed's 12 districts showed that economic activity rose nationwide in the first two months of the year.

All in all, "it's just a pretty solid, upbeat report," said Steven Cochrane, economist at Moody's Economy.com. "It shows there really hasn't been a slowdown in the pace of economic growth since the end of last year."

In addition, the release of the report seemed to hit the market at a good time from a technical perspective.

"We finally broke out of the trading range that we've been in recently, and that happened around the same time as the release of the 'beige book,'" said Tom Schrader, managing director of U.S. equity trading at Legg Mason.

On Tuesday, the Dow and S&P 500 also closed at nearly five-year highs, and the 'beige book' helped the major gauges build on that.

The report -- which gets its name from the color of the book's cover -- showed a rise in business spending, which suggests that the drivers of the economy are beginning to shift away from consumer spending, Cochrane added.

That's good news, as some economists have been concerned that a cooling in consumer spending will lead to a wider economic slowdown.

The report also seemed to support other recent evidence that the economy has recovered after a tough fourth quarter.

As of 6:00 p.m. ET, Nasdaq and S&P futures were pointing to a modestly lower open for stocks Thursday, when fair value is taken into account.

However, that could change, depending on the economic news released Thursday morning.

In particular, investors will be attuned to the February Consumer Price Index (CPI). CPI is expected to have risen 0.1 percent in the month, according to a consensus of economists surveyed by Briefing.com. CPI rose 0.7 percent in January.

The so-called "core" CPI, which excludes the volatile food and energy components, is expected to have risen 0.2 percent in the month, after rising 0.2 percent in January.

Reads are also due on February building permits and housing starts, March manufacturing in the Philadelphia region, and weekly jobless claims.

The sentiment on the day was bullish enough that investors were able to overlook another run up in Treasury bond yields.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.73 percent from 4.69 percent the previous session. Bond prices and yields move in opposite directions.

Part of the pullback in bonds was a reaction to Tuesday's advance. But bond investors were also eyeing a stronger-than-expected report on regional manufacturing.

The NY Empire State Index jumped to 31.2 in March from 21, while economists surveyed by Briefing.com had forecast a decline to 19.0.

Investors also took in a report showing a decline in import prices in February and a modest rise in export prices.

U.S. light crude oil for April delivery fell 93 cents to settle at $62.17 a barrel on the New York Mercantile Exchange, after the release of a mixed read on weekly inventories. Crude prices have risen more than 5 percent in the previous two sessions.

In currency trading, the dollar fell against the euro and the yen.

COMEX gold for April delivery rose $1.40 to settle at $554.40 an ounce.

Caterpillar (up $2.35 to $74.29, Research) was the Dow 30's big gainer, adding more than 3 percent.

It rose along with other economically-sensitive Dow stocks, such as Alcoa (up $0.30 to $29.90, Research), Honeywell (up $0.50 to $42.85, Research) and Boeing (up $0.60 to $76.05, Research).

Fellow Dow component DuPont (up $0.95 to $42.87, Research) rose 2.3 percent after boosting its first-quarter and full-year earnings forecast. The chemical maker also said it was restructuring one of its units and would cut 1,500 jobs.

Sears Holdings (up $15.02 to $132.29, Research) jumped nearly 13 percent in active Nasdaq trading after the retailer reported higher quarterly earnings that rose from a year ago.

SanDisk (up $3.11 to $56.53, Research), a flash memory chip maker, rose nearly 8 percent in busy Nasdaq trade, after being upgraded by Pacific Crest Securities.

PMC-Sierra (up $0.77 to $12.09, Research), a communication and storage chipmaker, rallied almost 7 percent after brokerage firm UBS upgraded it to "buy" from "neutral."

A bevy of telecom and networking shares jumped, including Ciena (up $0.47 to $5.35, Research), Research in Motion (up $5.72 to $88.71, Research) and Foundry Networks (up $0.78 to $16.74, Research).

Lehman Brothers reported higher quarterly earnings and revenue that topped estimates. But the company didn't beat forecasts by as large a margin as rival Goldman Sachs (down $0.42 to $149.00, Research) did on Tuesday, and Lehman (down $1.15 to $144.15, Research) shares slipped.

Additionally, H&R Block (down $1.37 to $20.63, Research) fell more than 6 percent after NY State Attorney General Eliot Spitzer filed a lawsuit against the firm, saying it engaged in fraudulent business practices including steering accounts into money-losing IRAs.

Market breadth was positive. On the New York Stock Exchange, winners beat losers almost two to one on volume of 1.63 billion shares. On the Nasdaq, advancers edged decliners three to two on volume of 2.12 billion shares.

Stocks had struggled through the early afternoon as rising bond yields played into worries about interest rates, but investors got some relief on that front from the Fed's report, which showed energy costs continued to pressure businesses, but retail prices rose moderately and labor cost were little changed.

Fed policymakers look to the beige book when making interest rate decisions, but market participants have already factored in another quarter-percentage point rate hike at the March 28 meeting, the first headed by new Federal Reserve chairman Ben Bernanke. As such, the beige book doesn't really change the sentiment about interest rates.

"The overriding issue is are we going to get one more rate hike or several," said Robert Philips, president and chief investment officer at Walnut Asset Management. He said this issue is what the stock market is reacting to day-to-day and is why it's been so tied to the bond market over the past few weeks.

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