Stocks staged a late rebound Thursday, erasing steep early losses, as investors brushed off data painting a grim picture of the nation's economy and snapped up beaten-down shares. 

Stocks had tumbled early after dour economic reports of rising jobless claims, slumping orders for long-lasting manufacturing goods and a big drop in existing home sales. But investors snapped up battered stocks on mounting hopes President Bush's push for more tax cuts and the Federal Reserve's nine interest rate cuts so far this year will resuscitate the economy by 2002.

The blue-chip Dow Jones industrial average climbed 117.28 points, or 1.25 percent, to 9,462.90, hitting its highest close since Sept. 10, the day before the attack on New York and Washington.

The technology-laced Nasdaq Composite Index jumped 43.75 points, or 2.53 percent, to end at 1,775.29, after falling more than 2 percent, and the broader Standard & Poor's 500 Index rose 14.86 points, or 1.37 percent, to 1,100.06.

"Today we had horrible news -- durable orders were a mess and everything is pointing to 'Oh my God, the economy still isn't getting any traction."' said Brian Finnerty, co-head of capital markets at C.E. Unterberg Towbin. "But when traders see good action even after bad news, they say, 'I'm going to miss the train -- I've gotta buy here."'

Short covering played a role in boosting stocks, traders said. Short covering occurs when investors, who have bet against the market going up, must replace stock they have borrowed and sold, triggering a wave of buying that often feeds on itself.

"We're seeing short sellers getting squeezed here," said Michael Ranis, a money manager for Bank Hapoalim in New York. "From the sharpness of the rise, I think that's happening again."

Thursday's gain means the Dow has won back 1227 points, or 85 percent, of the 1,369 it lost in the first week of trading after the attacks. The Nasdaq is 80 points above its pre-attack level and the S&P 500 is seven points higher than its Sept. 10 close.

Software giant Microsoft Corp. climbed $1.24 to $62.56 after launching the latest version of its flagship Windows software. Microsoft has long touted XP as the product that could help boost flagging PC sales, which fell more than 10 percent in the third quarter, according to research firm Gartner Dataquest.

There were lingering worries about falling earnings at companies, including long-distance telephone and data services company WorldCom Group , WorldCom posted a 44 percent drop in profits and warned sales in its core data and Internet business would slow in the fourth quarter and 2002. WorldCom fell 14 cents to $12.31.

And Oracle Corp. tumbled 71 cents to $13.95 after Salomon Smith Barney downgraded the database software maker, citing the high stock price, competitive concerns and lower earnings and revenue expectations.

One bright spot was Ericsson , which rose 20 cents to $4.35 after an industry source told Reuters the world's top mobile phone equipment maker is set to post a positive cash flow of 1.2 billion crowns (US$113 million) in the third quarter. The company had no comment.

Stocks of food decontamination companies rallied further on speculation the U.S. Postal Service could use their technology to kill anthrax spores in the mail, analysts said.

Steris Corp. , which has facilities that decontaminate health, science and food products, gained 86 cents to $23.01, its highest price since May 1999.

Anthrax scares have swept the nation as the U.S. mail has unintentionally delivered anthrax-tainted letters. Three people have died and 10 others have been confirmed to have been infected.

The latest economic news painted a grim picture for the economy. The Labor Department reported jobless claims jumped to 504,000 in the week ended Oct. 20, from 496,000 in the previous week as the economy continued to feel the aftershocks of the Sept. 11 attacks.

Continued claims for state unemployment benefits for the week ended Oct. 13 were the highest in more than 18 years.

And durable goods orders plunged 8.5 percent in September, after a big drop in orders for aircraft, computers, and communications equipment.

Yet another report showed sales of U.S. existing homes tumbled 11.7 percent in September as the Sept. 11 attacks brought that area of the economy to a virtual standstill, according to a real estate trade group.

Still, investors said the data should come as little surprise after the attacks on New York and the Washington area left some 5,000 people dead and slammed an already lagging economy.

Wall Street has largely held its ground in recent days despite a slew of bad news, including new outbreaks of the potentially deadly bacteria anthrax, as investors bet that the series of interest-rate cuts by the Federal Reserve and a massive injection of fiscal stimulus by Washington will get the economy back in shape.

"We believe the chance of a recovery next year is higher than the probability of another economy-stopping event," said Tim Woolston, who helps oversee $1.7 billion for Boston Advisors.

Advancing issues outnumbered declining ones by a 9-to-7 margin on the New York Stock Exchange, where volume came to 1.35 billion shares, slightly above Wednesday's pace.

The Russell 2000 index, the barometer of smaller company stocks, rose 7.12 to 434.77.

Overseas, Japan's Nikkei stock average ended the day up 0.7 percent. In afternoon trading, Germany's DAX index was down 2.9 percent, France's CAC-40 fell 2.4 percent percent, and Britain's FT-SE 100 declined 1.6 percent.

Reuters and the Associated Press contributed to this report.