NEW YORK (CNNMoney.com) - Stocks rallied Thursday afternoon as investors bet a series of weak economic reports could lead the Federal Reserve to hold off from another interest rate hike when its policy-makers meet later this month.

The Dow Jones industrial average (up 91.97 to 11,260.28, Charts) rose about 0.8 percent and the broader Standard & Poor's 500 index (Charts) jumped about 1.2 percent.

More market news: Why tech is hurting The Nasdaq is down in 2006 even though the broader market is still sitting on yearly gains. Here's why. (more) Weathering the market withering Soon this sell binge will be over. In the meantime take a deep breath and look at India. (more) A little froth could be good for blue chips As money flees overpriced investments, it should flow to big growth stocks that are still undervalued. (more)

More market news IPOs: Don't fear 'The Flip' Private equity backed deals raise several concerns, but the story isn't all doom and gloom. (more) IPOs behaving badly Call it the not-Google syndrome: For tech companies filing to go public lately, profitability is optional. Investors beware. (more) Brazilian IPOs: Hot, hot, hot Deal activity is heating up but investors could get burned, analysts caution. (more)

And after losing over 6 percent during May, Nasdaq composite (up 40.98 to 2,219.86, Charts) rallied 1.9 percent on the first day of June.

The next big number for Wall Street is the May employment report due Friday.

Investors are looking for any signs that the Fed might be under less pressure to raise rates again after 16 rate hikes over 22 months. Fed members have said they simply don't know what their next move will be as they await more signals on the state of the economy.

"That is the fear, how high will they go," said Peter Cardillo, chief market analyst at S.W. Bach & Co., referring to interest rates. The weak economic numbers were "basically helping to stabilize the market," he added.

Cardillo said he'll be looking at hourly wages and total jobs added in Friday's report. He said he expects the numbers to be light, and that the market will respond positively.

In after-hours action, Starbucks (Research) said its same store sales rose 7 percent, on the low side of analysts' estimates.

Tech made big gains Thursday, with the Amex networking index rising over 4 percent, despite an apparent lack of news to move the stocks.

"This whole area has been down for no good reason," said Kim Caughey, a tech analyst at Fort Pitt in Pittsburgh. "Maybe investors are looking for bargains."

A surprisingly weak manufacturing report helped get Thursday's rally going. The Institute for Supply Management said its purchasing managers index sank to 54.4 last month, below April's reading and Wall Street forecasts. A reading of 50 or higher represents growth in the sector.

Construction spending also came in below forecast, posting its first decline in 10 months.

Also helping ease inflationary fears was gold, which tumbled over 2 percent and hit a five-week low. The August COMEX contract fell $15.50 to $633.50 an ounce.

Economic reports have become even more important to investors as the Fed has yet to issue a clear signal about its next interest rate move. (Full story.)

The Commerce Department said April construction spending fell 0.1 percent, compared to a 0.9 percent rise the month prior. Pending home sales also fell in April, for the third month in a row, and a survey showed home prices rising at a slower pace.

But home stocks rose despite the news. The Philadelphia Housing Sector Index and the Dow Jones home construction index each rose nearly 2 percent, gaining back most of the selloff the two experienced Wednesday.

Before the bell, the government reported revised productivity growth of 3.7 percent in the first quarter, up from its initial reading of 3.2 percent. Rising productivity helps companies produce more without raising prices, and so can help keep corporate profits growing - and help keep inflation in check.

But a report on initial jobless claims came in above forecasts, which lifted the four-week average to the highest level since October 2005, and could alleviate some inflation fears.

In corporate news, Alcoa (up $0.85 to $32.57, Research) reached an last-minute agreement with the United Steelworkers union to avert a strike that could have hit the No. 1 aluminum maker Thursday. Shares in the Dow component rose over 2 percent.

Sales reports from major retail chains also came in before the bell.

Analysts surveyed by sales tracker First Call forecast a 3.8 percent average gain in sales at stores open at least a year, a closely watched retail measure known as same-store sales. But readings generally came in above forecasts.

Wal-Mart Stores (down $0.06 to $48.39, Research), the world's No. 1 retailer, came in at only a 2.3 percent gain, at the low end of its earlier guidance and below the forecast of a 2.9 percent rise.

The company warned Thursday it is not expecting things to be much better in the new month. It is forecasting a 1 to 3 percent gain in same store sales for June as it said high gasoline prices should continue to weigh on its sales.

On the autos front, General Motors (down $0.03 to $26.90, Research) said vehicle sales in May fell a whopping 16 percent, far worse than expected.

Ford (up $0.07 to $7.23, Research) also reported a drop in sales for May, although it was less than expected, while Chrysler's (down $0.03 to $52.58, Research) sales were a little lower than forecast.

Oil prices fell after initially flip flopping following a government report that showed gasoline inventories rose less than expected last week. The July light crude futures contract lost 95 cents to settle at $70.34 on the New York Mercantile Exchange.

Keeping a lid on prices was news from OPEC that the cartel will continue to pump at full capacity, blocking a bid by Venezuela to cut production.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners by a margin of three to one on volume of 1.7 billion shares. On the Nasdaq, winners also beat losers by a margin of roughly three to one as 2.1 billion shares changed hands.

Major markets in Asia closed mixed Thursday while European markets ended higher.

Treasury prices turned higher on the mild inflation signals, lowering the yield on the benchmark 10-year note to 5.1 percent from 5.12 percent late Wednesday. Bond prices and yields move in opposite directions.

In currency trading the dollar made small gains on the euro and yen.

------------------

More on the markets. Click here.