Stocks prolonged Wall Street's New Year party for another day Thursday as growing bullishness about the computer industry helped push the blue-chip Dow Jones industrial average to its highest finish since late August.

The Dow Jones industrial average rose 98.74 points, or 0.98 percent, to 10,172.14, powered by its technology components like Intel and Microsoft. It was the Dow's highest close since Aug. 28.

The tech-packed Nasdaq Composite Index rose 65.02 points, or 3.29 percent, to 2,044.27, driven higher into the close of trading. The index closed above the psychologically key 2,000 mark for the first time since Dec. 18.

The broader Standard & Poor's 500 Index gained 10.6 points, or 0.92 percent, to 1,165.27.

Investors "are looking towards the end of 2002 and saying, 'Maybe things are going to be a heck of a lot better 12 months from now than they are today, and I'm willing to close my eyes to what could still be a bumpy quarter,"' said Jeff Kleintop, chief investment adviser at PNC Advisors.

Computer chip stocks stole the spotlight, after reports on Wednesday of rising sales and higher prices in the sector spurred a buying spree. Investors snapped up shares of tech firms like Intel , EMC Corp. and Microsoft amid speculation their businesses will pick up.

"Folks are finally moving money out of market market funds and bond funds and back into the equity market, and as they do that, obviously they're looking for places that are seeing signs of improvement," said Gail Seneca, chief investment officer at Seneca Capital Management, which oversees $15 billion.

Wall Street was unfazed by news that a threatening letter containing a powdery substance — later found to be harmless — was found in the office of Senate Majority Leader Tom Daschle.

"I think the market has come to grips with the anthrax psycho out there," said Erik Gustafson, portfolio manager at Stein, Roe & Farnham. Reports of letters containing the deadly bacteria roiled the market late last year.

Wall Street expects the economy, now mired in recession, to resume growth in 2002. Investors' optimism has helped pull the stock market well off of three-year lows hit on Sept. 21.

"It seems like there were not a lot of pre-announcements in technology this quarter — that clearly helped people get more positive with company fundamentals," said Ahmet Okumus, president of Okumus Capital LLC, which manages $520 million.

Still, jitters about the fate of ailing corporate profits, are keeping investors wary. Software maker Peregrine Systems Inc. , for one, was hammered after warning of a quarterly loss due to the economic downturn. Peregrine tumbled more than 36 percent, or $5.24, to $9.27.

Semiconductor shares rose as investors bet chip stocks would be the first to recover in an economic rebound. The Philadelphia Stock Exchange semiconductor index shot up 8.28 percent and has now surged more than 50 percent from Sept. 21 when the market slammed to three-year lows.

Intel Corp., the world's largest maker of computer chips, climbed $2.52 to $35.52 and was among the Nasdaq's most active stocks. Wall Street house JP Morgan Chase said Intel should see strength in its server business in the first quarter and maintained its long-term "buy" rating on the Dow component.

Networking firm Cisco Systems Inc. also got a strong boost after two analysts made positive comments on the company's ability to gain market share and weather the economic slowdown. It jumped $1.53 to $20.76.

Data storage company EMC Corp. jumped $1.79 to $16.59 and ranked as the most heavily traded share on the New York Stock Exchange. Wall Street house Salomon Smith Barney raised its rating on the data storage company to "buy" from "outperform," saying EMC is a leader in its industry.

Other data storage companies followed suit. Network Appliance Inc. climbed $3.11 to $26.89. Brocade Communications Systems Inc. jumped $3.54 to $39.01.

Kmart Corp. plunged to new 20-year lows, falling 65 cents to $4.09 after Morgan Stanley cut its estimates on the company's earnings per share for fiscal 2002 and 2003. It took a hit on Wednesday after a Wall Street analyst suggested the discount retail chain might face bankruptcy.

Tyco International Ltd. fell for a second day in a row, as investors reacted to a research report that speculated the acquisitive conglomerate may be the subject of a new investigation by the Securities and Exchange Commission. Tyco, which denied the speculation, slumped $2.27 to $54.98.

Analysts see corporate profits picking up in the second quarter, but research firm Thomson Financial said that view may still be too optimistic.

"There is underlying nervousness about the economy, about earnings season, which is almost upon us, about the war on terrorism, about the fighting on Capitol Hill," Gustafson said. "There are many major issues left unsolved."

For the time being, the economy is still showing some signs of weakness. The number of Americans lining up to file for first-time unemployment benefits rose sharply during the week ended Dec. 29, indicating the labor market remains soft, a government report showed.

Advancing issues led decliners more than 3 to 2 on the New York Stock Exchange. Volume came to 1.08 billion, compared with 881.30 million shares at the same point Wednesday.

The Russell 2000 index rose 5.12 to 492.31.

Overseas, Japan's Nikkei stock average was closed for the New Year's holiday. In Europe, France's CAC-40 advanced 2.2 percent while Britain's FT-SE 100 rose 1.9 percent and Germany's DAX index gained 2.1 percent.

Reuters and the Associated Press contributed to this report.