Wall Street extended its gains Thursday as investors maintained their enthusiasm over lower interest rates and took heart from some strong earnings.

The market added to Wednesday's rally that propelled the blue-chip Dow above the psychologically key 11,000 mark to its highest level in eight months. However, gains made early in the day were pared by selling to pocket profits from Wednesday's enormous surge.

"Today we're seeing a follow-through of yesterday's strong rally, and some strong news out of Ciena and other companies is adding positive fuel to the fire," said Michael Palazzi, a trader at CIBC World Markets Inc.

The blue-chip Dow Jones industrial average ended the day up 32 points at 11248, after rising by more than 80 points during the day. The Nasdaq Composite Index gained 27 points to finish at 2193, also off its intraday highs. The broad Standard & Poor's 500 Index  gained 3.50 points.

``People are willing to take profits at this level,'' said Ted Oberhaus, manager of equity trading at Lord Abbett & Co. ``If you told any institutional trader that the Dow would be near 11,300 after the Fed meeting (on Tuesday), they would have been surprised.''

On Wednesday, the Dow had jumped 342 points, the fifth-largest point gain ever, in a delayed reaction to the Federal Reserve's interest-rate cut on Tuesday of half a percentage point -- the fifth such reduction this year. The Fed has been lowering rates in an effort to keep the U.S. economy from slipping into a recession.

Initial jobless claims, which give an early reading on the resilience of the labor market, fell for the second straight week to its lowest level in almost two months, the government said.

A key economic report out Thursday increased optimism that the economy is starting to recover. The Conference Board's Index of Leading Indicators, an important gauge of future economic activity rose 0.1 percent in April, gaining after two consecutive monthly declines.

About 75 percent of the Dow's rise came from tech giant Hewlett-Packard Co. H-P shares rose $3.96, or 14.8 percent, to $30.70, after the company reported quarterly profits that beat reduced estimates.

``A strong report from Hewlett-Packard is a good sign for the large-cap tech group and suggests the worst might be over,'' said Tracy Herrick, chief market strategist for brokerage Jefferies & Co. ``There's nothing like a good company like Hewlett giving that signal.''

Hewlett-Packard's top executives said the nation's economy appears to be bumping along a bottom, but sales might drop in the third quarter as the company grapples with a depleted order pipeline.

Communications gear maker Ciena Corp. erased earlier gains and dropped $2.15 to $56.75 by the end of the session. Ciena beat Wall Street's forecasts as it dodged the economic slowdown, citing strong demand for its next-generation optical networks.

Among Thursday's gainers were companies that posted better-than-expected earnings. Kmart advanced 45 cents at $10.58 after announcing it lost 2 cents a share in the first quarter, 5 cents less Wall Street expected.

Investors also bid up some major industrial shares - which stand to benefit as the economy strengthens - like Boeing, up $2.04 at $68.79.

Another sign of investors' resurgent optimism could be seen in what issues they sold Thursday, including stocks in so-called defensive sectors like consumer products. Procter & Gamble fell $1.14 to $67.15.

Analysts are confident the market will be able to hang onto much of its gains because the economy and earnings appear to be through the worst - a departure from the rate-cut rallies earlier this year that faded as worries about the future set back in.

However, analysts also said that the market is bound to take equally sizable tumbles as companies continue to report disappointing earnings well into the third quarter.

``The market is headed higher in a very volatile way with strong upswings like (Wednesday) and strong downswings that are going to scare the pants off some people. But this is all typical in the early stages of a market advance,'' said Al Mirman, market strategist for V Finance in Sarasota, Fla.

Advancing issues outnumbered decliners 3 to 2 on the New York Stock Exchange where volume was 1.34 billion shares, down from 1.35 billion at the same point Wednesday.

The Russell 2000 index, which measures the performance of smaller companies stocks, rose 7.55 to 504.76.

Overseas markets were higher Thursday with Japan's Nikkei stock average ending the day up 1.6 percent. In Europe, Germany's DAX index and Britain's FT-SE 100 each rose 0.4 percent, and France's CAC-40 advanced 1.3 percent.

— The Associated Press and Reuters contributed to this report.