Stocks gained strength Thursday after solid earnings from consumer products heavyweight Procter & Gamble helped calm investors' fears about accounting issues.

The blue-chip Dow Jones industrial average rallied 157.14 points, or 1.61 percent, at 9,920.00 — its highest level since Jan. 15. The technology-laced Nasdaq Composite Index rose 20.66 points, or 1.08 percent, to 1,934.10. The broad Standard & Poor's 500 Index climbed 16.43 points, or 1.48 percent, to 1,130.

"The evidence is growing increasingly conclusive that the economy has bottomed out and will emerge from this recession in the next few months, if it hasn't already," said Charlie Crane, strategist at Victory SBSF Capital Management, which oversees $4 billion.

A bullish analyst call on chip giant Intel Corp. lifted sentiment another notch a day after the Federal Reserve said the economic outlook was brightening. That was just what Wall Street wanted to hear after days of grappling with worries over corporate accounting amid the scandal surrounding collapsed energy trader Enron Corp..

The market has enjoyed two straight days of gains and wrapped up January on a bright note, but the major stock gauges still lost ground this month. History has shown that the direction of the market in January often foreshadows the direction of the broad market for the year.

Defense shares like Northrop Grumman Corp. added to the market's momentum. Defense Secretary Donald Rumsfeld called for billions of dollars in spending on high-tech weapons to defend the United States after the Sept. 11 assaults.

For the month of January, the Nasdaq has lost 0.9 percent, the Dow is off 1 percent and the S&P 500 fell 1.6 percent. Economic data, however, are becoming increasingly positive as the central bank's 11 interest-rate cuts begin to take hold.

More U.S. workers applied for jobless benefits last week and consumer spending slowed in December, but economists say Thursday's data still show the worst is likely over for the recession-hit economy. On Wednesday the government said gross domestic product, the broadest gauge of the economy's health, increased slightly and defied expectations for a contraction.

"We are seeing convincing evidence the economy is improving," said Michelle Clayman, chief investment officer at New Amsterdam Partners, which oversees $1.4 billion. "The economy may have actually bottomed out in November. A lot of fourth-quarter earnings are coming in very weak, but positive earnings estimate revisions are rising. That's good for stocks."

Procter & Gamble jumped $3.39 to $81.68, hitting its highest close in nearly two years and boosting the Dow. The consumer products company posted a 9 percent gain in quarterly net income and its first sales increase in more than a year after jobs cuts and other cost-cutting measures.

Intel, the No. 1 maker of computer chips, rose $1.18 to $35.04 following an upgrade to "strong buy" from "buy" by Merrill Lynch, which said Wall Street is underestimating the potential of Intel's new processors. The stock is trading near its 52-week high of $38.59, achieved in February of last year.

Oracle Corp., the No. 2 software maker, rose 64 cents to $17.26. Investors took heart in news that Oracle's chief financial officer said there are signs the industry's fortunes will reverse by spring. Prudential Securities raised its rating on Oracle to "buy" from "hold."

Defense shares rallied as investors expected a hefty increase in Pentagon spending for weapons when the Bush administration lays out its budget next week, analysts said.

The Standard & Poor's aerospace and defense index rose 3.57 percent. Northrop Grumman tacked on a $4.80 gain to $111.61. L-3 Communications Holdings Inc. jumped $3.42 to $102.52. General Dynamics Corp. climbed $4.26 to $89.56.

Tyco International Inc., the most active stock on the New York Stock Exchange, rose 30 cents to $35.15. On Wednesday, top executives came to the rescue by announcing they will buy 1 million of Tyco's shares in a move that stopped a dramatic downward spiral of the stock.

Insurer American International Group Inc., which had also been rocked by accounting concerns in the past few sessions, racked up a $2.86 gain to $74.15.

The market was getting a bit of a reprieve from "Enron-itis," Wall Street's accounting jitters, said Richard Babson, chairman of Babson-United Investment Advisors "but that's still overhanging the market, creating uncertainty."

Irish drug company Elan fell further after plunging to two-year lows a day earlier over concerns about the company's accounting methods. It dropped $1.16 to $28.09.

On Friday, Wall Street will scrutinize the crucial jobs data. U.S. payrolls are expected to have shed 27,000 jobs in January, according to economists polled by Reuters, following a drop of 124,000 in December. Economists estimated the unemployment rate rose to 5.9 percent in January from 5.8 percent in December

Gainers beat out losers on the New York Stock Exchange by a ratio of 2 to 1 and 3 to 2 on Nasdaq. More than 1.5 billion shares changed hands on the Big Board, and more than 1.7 billion on Nasdaq.

The Russell 2000 index, which measures the performance of smaller company stocks, rose 3.38, or 0.7 percent, to 483.10. 

Overseas, markets were higher Thursday with Japan's Nikkei stock average finishing up 0.8 percent. In Europe, France's CAC-40 Britain's FT-SE 100 each and Germany's DAX index all gained 1.1 percent.

Reuters and the Associated Press contributed to this report.