NEW YORK (CNN/Money) - Cheery buyers soaked up stocks Wednesday, amid a Microsoft upgrade and some solid economic news, and ahead of an extended holiday weekend.

Whether stocks continue to rally during Thursday's shortened session depends partly on the huge slew of economic news due in the early going and partly on whether the light volume makes trading extra volatile.

Markets close at 1 p.m. ET Thursday and will be closed Friday as well, due to the Fourth of July holiday. Volume is expected to be particularly light Thursday as many Wall Streeters will likely skip out early.

With no trade Friday, all of that day's monthly economic reports have been crammed into Thursday's schedule. The monthly jobs report is probably the most likely market mover. Due out before the markets open, the unemployment rate is expected to have risen to 6.2 percent in June from 6.1 percent in May, according to a consensus of economists surveyed by Briefing.com. Economists see no change in the June payrolls number; some 17,000 jobs were cut in May.

Weekly initial jobless claims are also due and are expected to have risen to 412,000 last week from 404,000 the previous week, according to Briefing.com.

After trading begins, the Institute for Supply Management's June reading on the services sector of the economy will be released. The index is forecast to have risen slightly, to 55.0 from 54.5 last month.

"If the numbers generally come in as expected, they will be perceived as old news, and you won't see much reaction," said Joseph Battapaglia, chief stock strategist at Ryan, Beck & Co. "But if they disappoint, particularly the weekly jobless claims number, you could see some selling."

A Merrill Lynch upgrade of Microsoft before the opening bell set stocks on the upward path right from the get go. Gains were magnified by a strong report on factory orders, the dismissal of several lawsuits against brokerage firms and by a continued willingness on the part of investors to take the market higher.

The tech-driven Nasdaq composite (up 38.60 to 1678.73, Charts) rose around 2.3 percent, while the Dow Jones industrial average (up 101.89 to 9142.84, Charts) and the Standard & Poor's 500 (up 11.43 to 993.75, Charts) index both gained around 1.1 percent.

Merrill Lynch upgraded technology leader Microsoft (MSFT: up $0.73 to $26.88, Research, Estimates) to "buy" from "neutral" and increased its 2004 earnings forecast for the company, saying it has the potential for higher earnings and a dividend increase and that its valuation is more compelling than that of its peers.

The stock gained almost 2.8 percent, boosting both the Nasdaq composite, where it is one of the most heavily weighted issues, and the industrial average, of which it is a member.

Merrill also added Microsoft to its Focus One list of top stock picks, together with fellow Dow stock Wal-Mart Stores (WMT: up $1.38 to $55.73, Research, Estimates), which climbed 2.5 percent.

Buying was fairly broad: of the 30 stocks that comprise the Dow industrials, 27 closed higher.

On the Nasdaq, shares of other big-cap technology stocks rose as well, including Cisco Systems (CSCO: up $0.62 to $17.86, Research, Estimates), which gained 3.6 percent and Intel (INTC: up $0.80 to $22.21, Research, Estimates), which gained 3.7 percent.

"We're into the second day of the quarter, and the market is technically signaling a short-term rebound as we prepare for tomorrow's unemployment report," said Peter Cardillo, director of research at Global Partners Securities.

On Tuesday, stocks initially sold off after a weak report on manufacturing but managed a big comeback by the close, thanks in part to strength in brokerage stocks, a development that continued to help the market Wednesday.

In a move that could have implications for the whole sector, two judges threw out lawsuits Monday brought by investors who claimed that research from analysts at four of Wall Street's biggest firms caused them to lose money in the stock market. On Wednesday, a judge threw out another such lawsuit, this one just against Merrill Lynch (MER: up $0.44 to $48.64, Research, Estimates).

Adding to the positive sentiment, the morning's economic news showed that factory orders rose 0.4 percent in May, beating estimates that orders would be unchanged and following a revised drop of 3.0 percent in April.

Investors have bought shares of all kinds of companies over the latest quarter on a bet that the second half will shine, in terms of both the economy and corporate profits. As a result, any data that seemed to support the recovery theory have been seized upon and used as a good excuse to buy stocks.

"There's a positive bias, and expectation that the economy and corporate profits are going to improve. It's been there over the last three or four months and it's continuing," added Ryan, Beck's Battapaglia. "This is probably the start of the second leg of it, where there's going to need to be an actualization of that optimism."

Volume was relatively light but failed to trigger the kind of volatile late-session swings that sometimes characterize shortened trading weeks, a fact that analysts said was relevant since it highlighted the market's continued optimism.

More than three stocks rose for every one that fell on the New York Stock Exchange, where 1.44 billion shares traded. On the Nasdaq, winners beat losers by more than 11 to five as 1.83 billion shares changed hands.

Almost all European markets closed higher, and Asian stocks ended mostly higher Wednesday.

Treasury prices rose modestly, with the 10-year note adding 4/32 of a point in price, pushing its yield down to 3.53 percent. The dollar gained slightly versus the euro and fell more substantially versus the yen.

NYMEX light sweet crude oil futures fell 25 cents to $30.15 a barrel. COMEX gold rose 30 cents to $351.60.