Stocks posted their biggest gains in three weeks on Thursday as hope for an upcoming resolution in the Microsoft antitrust case offset another batch of mediocre economic news.

The Dow Jones industrial average soared 188.76 points, or 2.08 percent, to 9,263.90 while the technology-packed Nasdaq Composite Index jumped 56.10 points, or 3.32 percent, to end at 1,746.30. The broader Standard & Poor's 500 Index rose 24.32 points, or 2.29 percent, to 1,084.10.

Microsoft, up $3.69 at $61.84, contributed a hefty chunk of the Dow's rise and propelled tech stocks higher, after it became clear the tech bellwether and the Justice Department, tentatively agreed to settle the historic antitrust case already won by the government.

"Any time you remove a cloud from a stock or industry, then you certainly have a much more sanguine feeling," said Ned Collins, head of trading at Daiwa Securities America.

The S&P software index rose 5.86 percent, reflecting gains in other software companies such as PeopleSoft Inc , up $2.09 at $31.86 and Veritas Software, up $3.10 at $31.48.

"The combination of the Microsoft decision, if you can call it a decision, and some good news from the Purchasing Managers index, if you looked hard, and the decline in long-term interest rates conspired to help the market," said Hugh Johnson, chief investment officer at First Albany Corp.

Attorneys general from 18 states are weighing whether they can be satisfied with proposed penalties Microsoft would face for at least the next five years, according to people familiar with the negotiations.

Investors kept up hope for an economic rebound in 2002 despite grim data.

The manufacturing sector sank deeper into recession in October as the Sept. 11 attacks thwarted efforts by factories to climb out of a 15-month slump. Consumer spending fell at the fastest pace in more than 14 years in September as shell-shocked Americans clamped their wallets shut. Despite the grim economic data, investors are betting on an economic rebound in 2002.

"People are taking a look at the market and saying there could be light at the end of the tunnel and that the (government) stimulus package and rate cuts are at some point going to kick in," said Daiwa's Collins.

Although the NAPM survey looked pretty dismal, First Albany's Johnson said a closer look revealed some bright spots: supplier deliveries were up and prices paid were down, "so it showed that the prospects for the manufacturing sector, in some respects, are improving."

Other big gainers included Sun Microsystems Inc., which rose 69 cents to $10.84, or 6.8 percent. Its chief executive said the network computer maker can survive a few years of economic turmoil if necessary.

Chip sales sank more than 44 percent in September versus the same year-ago period, according to the Semiconductor Industry Association. But the association expects sales during the last three months of the year to improve over the quarter ended in September.

Embattled energy trader Enron Corp. closed at $11.99, down $1.91, or 13.7 percent. Its shares have fallen 65 percent since Oct. 16, when Enron said it would take $1.01 billion in charges for certain investments. The shares hit a nine-year low on Tuesday.

Intel Corp., the world's largest chip maker, added to gains, rising $1.52 to $25.94. The Philadelphia Stock Exchange semiconductor index jumped 6.7 percent.

UAL Corp. and Delta Air Lines Inc., the second- and third-largest U.S. airlines, posted combined net losses of $1.42 billion, after the Sept. 11 attacks sharply curtailed ticket sales. But UAL shares rose 38 cents to $13.10, or 2.99 percent, and Delta shares gained 80 cents to $23.66, or 3.5 percent, as the losses still managed to beat Wall Street expectations.

Food giant General Mills Inc. jumped $1.08 to $47. British drinks group Diageo Plc and General Mills completed the sale of Pillsbury foods from Diageo to General Mills for $10.4 billion.

Investors are still waiting for Friday's key reading on unemployment in October.

Thursday, the government reported jobless claims rose by 55,000 to 3.69 million for the week ended Oct. 20. That was the highest level since 3.70 million claims were recorded for the week ended May 21, 1983, and the number likely sets the stage for a grim October unemployment report on Friday.

Economists are forecasting that the unemployment report, due at 8:30 a.m. EST , will show that companies shed 289,000 jobs last month, driving the unemployment rate up to 5.2 percent in October from 4.9 percent in September.

U.S. 30-year Treasury bonds leapt higher, adding to a record-smashing gain in the previous session as a weak manufacturing report and an end to the U.S. government's issuance of the long-term bond sent investors scrambling to buy the debt.

"The biggest factor involving things is what happened with the cancellation of the 30-year bond auction. That I think is a catalyst and it's going to provide some economic stimulus because it is lowering mortgage rates as we speak," said Michael Strauss, managing director/senior economist at Commonfund, which manages $26 billion.

Lower mortgage rates will further extend a boom in refinancings, traders said. That's bad news for companies that service mortgage loans, like Washington Mutual Inc. . The stock of the No. 1 U.S. savings and loan fell 5.4 percent or $1.63 to $28.56, as investors bet refinancing might weaken its mortgage loan business. It was the most active on the New York Stock Exchange.

Advancing issues outnumbered decliners more than 2 to 1 on the New York Stock Exchange. Volume came to 1.29 billion shares, compared with the 1.31 billion shares traded Wednesday.

The Russell 2000 index, which tracks smaller company stocks, rose 6.71, or 1.6 percent, to 434.88.

Overseas markets were mixed Thursday. Japan's Nikkei stock average finished with a slight loss of 0.2 percent. Britain's FT-SE 100 and France's CAC-40 each closed up 0.6 percent, and Germany's DAX index gained 1.7 percent.

Reuters and the Associated Press contributed to this report.