Stocks surged Thursday, with the Standard & Poor's 500 posting its highest close since March 2002, as crude prices continued their tumble below $49 and a six-percent rise in tobacco company Altria supported the Dow.

The Dow Jones industrial average (search) jumped 177.71 points, or 1.75 percent, to close at 10,314.76. The Standard & Poor's 500 Index (search) rose 18.47 points, or 1.62 percent, to end at 1,161.67. The technology-laced Nasdaq Composite Index (search) gained 19.30 points, or 0.96 percent, to finish at 2,023.63.

The S&P 500 closed at its highest level since March 2002, scoring its biggest gain since March 2004. The Dow closed higher for the seventh time out of the last eight sessions, posting its biggest rise in 13 months.

Oil prices tumbled below the $49 per barrel mark, giving investors hope that crude, which climbed steadily through October, could be stabilizing. A barrel of light crude was quoted at $48.82, down $2.06, on the New York Mercantile Exchange (search) — the lowest settlement price since Sept. 29.

"I think oil has a lot to do with it," said Michael Palazzi, managing director of equity trading at SG Cowen Securities. "There are some technicals here that have come through as well, but oil is a huge part of this rally."

On Wednesday, the stock market surged, lifted by gains in the shares of companies in the health and defense sectors, which are likely to benefit from the re-election of President Bush.

"This is a continuation of yesterday ... people are putting their money to work after the election," said Adam Tracy, director of listed trading at San Francisco investment bank Thomas Weisel Partners.

"Oil has also definitely helped."

Altria Group (MO) supported the Dow, leaping 8.5 percent, or $4.23 to $54.23, while its majority-owned foods business, Kraft Foods Inc. rose 3.3 percent, or $1.09 to $34.52.

But a downgrade of chip equipment makers by Banc of America Securities hurt companies like KLA-Tencor Corp. (KLAC), ,down 18 cents at $44.84.

Wireless technology firm Qualcomm Inc. (QCOM) weighed on Nasdaq, down $1.80 to $38.07 a day after it set an earnings target below Wall Street's expectations.

Whether the rally will continue will likely depend on whether Friday's job creation report from the Labor Department (search) shows strong employment gains. The Federal Reserve (search) meeting next Wednesday — which will likely result in a quarter percentage point hike in interest rates — is also expected to move the market.

"I think there's a potential here to break out of the gentle downward trend we've seen since April," said Rod Smyth, chief investment strategist at Wachovia Securities. "We're now back to the issues that are more likely to dominate, which is Fed policy and oil prices and prospects for inflation, those kind of things."

In perhaps a positive precursor to Friday's jobs report, the Labor Department said first-time unemployment claims fell to 332,000 last week, down 19,000 from the previous week — a better showing than Wall Street had expected.

However, the nation's productivity rose by only 1.9 percent in the third quarter, the smallest gain since late 2002 and far less than the brisk 3.9 percent pace in the second quarter, according to the Labor Department.

The dollar inched toward record lows against the euro on Thursday as traders worried about the growing U.S. current account deficit and other problems in the U.S. economy. The euro was trading at $1.2861 , up 0.34 percent on the day.

Mixed reports about Palestinian President Yasser Arafat (search), who was fighting for his life in a French hospital Thursday, may have helped stocks, on speculation that a change of leadership may increase stability in the region.

"People are believing that that might create a little bit of stability over there," Tracy said.

The 75-year-old leader went into a coma overnight. Aides said he was in a critical condition but denied he was dead.

Investors welcomed moderate gains in October retail sales, though bellwether Wal-Mart Stores Inc. (WMT) posted only a 2.8 percent gain in stores open at least a year. Retail analysts were expecting a 3 percent gain. Wal-Mart nonetheless rose $1.78 to $56.26.

Qwest Communications International Inc. (Q) swung to a loss in the third quarter due to lower revenues and one-time charges. Even without the charges, Qwest missed Wall Street forecasts by a penny per share. Qwest climbed 17 cents to $3.58.

Drug store chain CVS Corp. (CVS) climbed $2.52 to $46.90 as the company beat analysts' profit forecasts by 3 cents per share. The company reported lower profits from a year ago as it absorbed the acquisition of rival Eckerd's drug stores and its mail order pharmacy business.

Overall, trading was heavy, with 1.79 billion shares changing hands on the New York Stock Exchange, above the 1.4 billion daily average for last year. About 1.82 billion shares were traded on Nasdaq, above the 1.69 billion daily average last year.

Advancers outnumbered decliners on the NYSE by a ratio of about 3 to 1, and on the Nasdaq, by three to two on Nasdaq.

The Russell 2000 index of smaller companies was up 2.96, or 0.5 percent, at 598.29.

Overseas, Japan's Nikkei stock average rose 0.54 percent. In afternoon trading, Britain's FTSE 100 was up 0.21 percent, Germany's DAX index gained 0.06 percent, and France's CAC-40 fell 0.2 percent.

Reuters and the Associated Press contributed to this report.