NEW YORK (CNNmoney) - U.S. stocks rallied in the face of dismal economic news Thursday as investors wary of missing the next big gain continued buying stocks on any dips.
Down nearly 48 points in the morning, the Nasdaq composite index finished 2.5 percent higher. The Dow Jones industrial average bounced back from a 168-point decline, finishing at its highest levels since the Sept. 11 terrorist attacks.
"The market seems like it wants to go higher," said Donald Selkin, chief investment strategist at Joseph Gunnar. "People are looking beyond the valley."
The valley deepened when data showed that durable goods fell 8.5 percent in September while existing home sales declined 11.7 percent. But as the session wore on, investors betting on a profit rebound next year snapped up stocks.
That's been the pattern since Sept. 21, with every selloff leading to higher highs. The Nasdaq has recouped all its post-Sept. 11 losses, and the Dow industrials stand less than 145 points below pre-attack levels.
"This shows that investors are ready to take on more of a tolerance for risk," Selkin said.
The risk-taking comes as U.S. lawmakers work through details of a multi-billion dollar economic stimulus package. The Federal Reserve in less than two weeks is expected to cut interest rates for the tenth time this year. And corporate profits are forecast to rebound in the second quarter of 2002.
The Dow Jones industrial average rose 117.28 points, or 1.3 percent, to 9,462.90, putting it 15 percent above Sept. 21 levels, while the Nasdaq composite index rose 43.93 points, or 2.5 percent to 1,775.47. The tech-laden index stands 20 percent above last month's lows. The Standard & Poor's 500 gained 14.89, or 1.4 percent, to 1,100.09, its highest finish since Sept. 6.
More stocks rose than fell. On the New York Stock Exchange, advancing stocks beat declining ones by 1,900 to 1,194 as 1.3 billion million shares traded. Nasdaq winners beat losers 2,158 to 1,409 as 2.2 billion shares changed hands.
In other markets, Treasury securities rose after the day's weak economic data made lower interest rates more likely. The dollar ended little changed against the euro and yen.
Big ticket declines
Among the day's winners, Dell Computer (DELL: up $0.96 to $25.86, Research, Estimates) rose after CEO Michael Dell said he expects consumer demand for personal computers to drive the company's sales higher in its fiscal fourth quarter, according to a Reuters report.
JDS Uniphase (JDSU: up $0.89 to $9.96, Research, Estimates) rose ahead of its quarterly results that came in well worse than estimates. The maker of fiber optic equipment lost 20 cents per share after earning 18 cents last year.
Microsoft (MSFT: up $1.24 to $62.56, Research, Estimates) launched a new operating system Thursday, even as published reports said the software maker may be facing new hurdles.
The market's gains raise questions about sustainability for investors burned by false rallies. Nine of the Nasdaq's 10 biggest one-day gains have come since April, 2000, a period when the index has tumbled.
But James Awad, of Awad Asset Management, said the market's turnaround signals that the worst news about the economy and profits may be over.
"This is a way for the market to say that if this is as bad as it gets in regards to bio-terrorism, poor (quarterly) results and the war, then we can handle it," he said.
In a string of dismal economic news, orders for cars, planes and other big-ticket equipment plunged 8.5 percent in September, to their lowest levels in five years
Separately, the number of Americans filing for jobless claims rose by 8,000 to 504,000 last week. And existing home sales tumbled 11.7 percent in September, a realtors' group said, as one of the economy's few pillars of stability began to crack.
"I think it's symptomatic of how weak this economy really is," Bob McIntosh, chief economist at Eaton Vance, told CNNfn's Before Hours. "This tells us the slowdown is accelerating more than expected."
McIntosh said the weak numbers cement the case for a quarter percentage-point cut in interest rates at the Federal Reserve's meeting next month.
An index measuring available jobs, meanwhile, fell to its lowest level in nearly 20 years. The Conference Board's Help Wanted Advertising Index
fell to 52 in September, its lowest since February 1982.
Concerned about the slowdown, the House of Representatives late Wednesday passed a $100 billion economic stimulus package that gives big tax cuts to companies. The package could face challenges in the Senate, where Democrats want more aid for displaced workers.
The package comes at a tough time for companies, which are in what is expected to be the fourth straight quarter of falling profits.
Among companies facing slowdown, Foundry Networks (FDRY: down $1.16 to $9.86, Research, Estimates), a maker of communications gear, said profit plunged to 2 cents a share in the third quarter, missing forecasts and down from 22 cents a year earlier.
Oracle (ORCL: down $0.71 to $13.95, Research, Estimates) fell after Salomon Smith Barney downgraded the software maker to "neutral" from "outperform." Brocade Communications (BRCD: down $0.72 to $26.38, Research, Estimates) was downgraded to "neutral" from "outperform" by Morgan Stanley.
Dow Chemical (DOW: down $0.15 to $34.85, Research, Estimates) said profit fell to $385 million, or 16 cents a diluted share, from $694 million, or 40 cents a share, a year earlier. That matched forecasts.
WorldCom Group (WCOM: down $0.14 to $12.31, Research, Estimates) said profit fell to 16 cents a share, matching forecasts.
The European Central Bank didn't cut interest rates Thursday, leaving its benchmark borrowing level steady at 3.75 percent. That's in contrast to the Federal Reserve, which is expected to lower borrowing costs for the tenth time this year when its policy makers meet Nov. 6.
Enron (ENE: down $0.06 to $16.35, Research, Estimates) was among the gainers. The energy trading company - whose stock has tumbled more than 50 percent this month - parted with its chief financial officer, who has been linked to transactions now under investigation by government regulators.
At one point Thursday, all 30 Dow stocks were down. By session's end, 23 rose. The biggest winners were economically sensitive financials such as J.P. Morgan Chase (JPM: up $1.26 to $37.48, Research, Estimates), Citigroup (C: up $1.16 to $48.10, Research, Estimates), and American Express (AXP: up $0.68 to $30.67, Research, Estimates).
The losers included defensive stocks that investors flock to amid economic weakness. Merck (MRK: down $0.51 to $66.49, Research, Estimates), Johnson & Johnson (MRK: down $0.51 to $66.49, Research, Estimates) and Philip Morris (MO: down $0.74 to $49.39, Research, Estimates) all fell. 
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