U.S. stocks rallied on Thursday, buoyed by stronger-than-expected earnings from heavy equipment maker Caterpillar Inc. and a government report on durable goods orders that suggested the world's biggest economy is still on a stable growth path.

Caterpillar (CAT ), up 5 percent at $65.17 on the New York Stock Exchange, gave the Dow its biggest lift. Earlier, Caterpillar shares climbed to a record $65.40 after the company said "unprecedented customer demand" for its construction and mining equipment drove its fourth-quarter profit.

"It was really a story of positive earnings on the tape and no major hiccups on the economic front," said Bryan Piskorowski, market analyst at Wachovia Securities LLC. in Richmond. "You had decent reports from three sectors in general: industrial, tech and health care."

The Dow Jones industrial average (DJI) was up 99.73 points, or 0.93 percent, at 10,809.47. The Standard & Poor's 500 Index (SPX) was up 9.15 points, or 0.72 percent, at 1,273.83. The Nasdaq Composite Index (IXIC) was up 22.35 points, or 0.99 percent, at 2,283.00.

After the closing bell, Microsoft Corp. (MSFT), the world's largest software maker, reported a higher quarterly profit — pushing its shares up 2.4 percent to $27.14 on the Inet electronic brokerage system from a Nasdaq close at $26.50.

DOW Back in the Black for the Year

Thursday's gains lifted the Dow back into positive territory for the year — up almost 1 percent for 2006 — after last Friday's 213-point sell-off had erased its gain for the year on several disappointing earnings reports and a surge in crude oil prices.

Market strategists said December's larger-than-expected increase of 1.3 percent in new orders for durable goods made it more likely that the U.S. Federal Reserve would raise interest rates at least two more times — in January and in March. Economists had expected a 1 percent gain in new orders for durable goods, which are expensive items, like cars and washing machines, built to last three years or more.

The economic data drove U.S. Treasury debt prices lower and by 4 p.m., the yield on the benchmark 10-year note had risen to 4.53 percent, its highest in six weeks. The yield curve, or the difference between 10-year and two-year Treasury note yields, grew slightly steeper, with the two-year note's yield at 4.48 percent at around 4 p.m.

"Today's economic data was really good," said Neil Massa, senior trader at John Hancock Funds. "Right now, it looks like the Fed would raise rates in March. Some of the banks that have been suffering as of late, due to the flattening yield curve, should get some help."

The prospect of higher interest rates prompted investors to buy rate-sensitive stocks like banks, like Citigroup Inc. (C) and JPMorgan Chase & Co. (JPM), both Dow components.

Shares of Citigroup, the largest U.S. financial services company, rose 1.7 percent, or 78 cents, to $47.01 on the NYSE, and contributed the most to the S&P 500's gain.

The stock of JPMorgan Chase, the No. 3 U.S. bank, gained 2.9 percent, or $1.11, to $39.59.

The policy-making Federal Open Market Committee is scheduled to meet on Tuesday, when it is widely expected to raise short-term U.S. interest rates for the 14th consecutive time. The FOMC also is set to meet on March 28. A Reuters poll taken on Thursday showed that the majority — 17 of the 21 primary bond dealers surveyed — believe the Fed will raise rates again in March.

Robust Health Care Sector Earnings

In the health care sector, Quest Diagnostics Inc. (DGX) and Becton Dickinson & Co. (BDX) both reported earnings that beat Wall Street estimates.

Shares of Quest, the largest U.S. medical testing company, rose 2.2 percent, or $1.09, to $50.55, while shares of Becton Dickinson, a maker of laboratory and diagnostic systems, shot up 9 percent, or $5.30, to $64.41.

Chipotle's IPO Sizzles, GM Drops

The stock price of fast-growing restaurant chain Chipotle Mexican Grill Inc. (CMG) jumped in its first day of trading to close at $44 — up 100 percent or double its $22 initial public offering price — on the New York Stock Exchange.

Chipotle's stock opened at $45 and hit a session high at $48.05 on the NYSE — more than double its IPO price.

But shares of General Motors Corp. (GM), a Dow component, bucked the trend, falling 3.4 percent, or 80 cents, to $23.05 after the world's largest auto maker said its fourth-quarter loss ballooned to $4.8 billion.

Besides earnings news, investors kept an eye on the Middle East after the Islamic militant group Hamas won an upset victory in Palestinian parliamentary elections.

U.S. crude oil for March delivery rose 41 cents to settle at $66.26 a barrel on the New York Mercantile Exchange, reflecting worries about supply disruptions due to unrest in Nigeria and tensions over Iran's nuclear ambitions.

Trading was heavy on the NYSE, with about 2.08 billion shares changing hands, above last year's daily average of 1.61 billion, while on Nasdaq, about 2.50 billion shares traded, above last year's daily average of 1.80 billion.

Advancing stocks outnumbered declining ones by a ratio of about 2 to 1 on the NYSE and by about 7 to 3 on Nasdaq.