A wide swath of good news, from better-than-expected retail sales and worker productivity figures to a major court victory for Merck & Co. (MRK), drove stocks higher Thursday, although a jump in oil prices limited the gains.

Wall Street's (search) inflation worries were mollified by the latest government report on productivity, which rose 4.1 percent in the third quarter, the biggest rise in a year. With workers more productive, they can be paid more without increasing the risk of inflation.

And while investors remain cautious about consumer spending this winter due to high heating prices, October's retail sales reports were generally stronger than expected, with Wal-Mart Stores Inc. (WMT), Costco Wholesale Corp. (COST) and Nordstrom Inc. (JWN) all surpassing expectations.

Stock buyers received further encouragement by a report showing growth in the service sector. The Institute for Supply Management's (search) services index rose to 60 in October from 53.3 in September and three points better than economists had forecast.

Yet the market received a harsh reminder of the long-term problems the economy faces as oil prices surged $2.03 to settle at $61.78 per barrel on the New York Mercantile Exchange (search). The jump in oil ate into some of the market's gains and brought to mind the high energy prices, inflation and expected drop in fourth quarter consumer spending that lie in the future.

"That's a lot of good news that's driving the market today," said Hugh Johnson, chief investment officer at Johnson Illington Advisers. "But it begs the question, who knows what the market will tell us tomorrow? It's been an on-again, off-again market. Today it's on-again."

According to preliminary calculations, the Dow Jones industrial average rose 49.86, or 0.48 percent, to 10,522.59.

Broader stock indicators also moved higher. The Standard & Poor's 500 index added 5.18, or 0.43 percent, to 1,219.94, and the Nasdaq composite index climbed 15.91, or 0.74 percent, to 2,160.22.

Bonds continued dropping one session after falling to their lowest levels since March. The yield on the 10-year Treasury note climbed to 4.64 percent from 4.61 percent late Wednesday. The dollar rose against most major currencies, while gold prices fell.

Investors received more reassurance after Federal Reserve Chairman Alan Greenspan (search) said he was bullish on the economy, telling a congressional hearing the economic impact from the recent spate of hurricanes was temporary and that the economy remained sturdy. However, he said the Fed would keep a close watch on energy prices in case they spark broader inflation, which made the day's good news all the more important on Wall Street.

"Everyone assumes the Fed is going to be coming at this economy with higher interest rates, so it's nice to have a running start," said Jack Ablin, chief investment officer at Harris Private Bank. "The better shape our economy is in, the better we'll be able to withstand the rate hikes and avoid a hard landing."

Investors' improving take on the economy was furthered by the Labor Department's weekly report on first-time unemployment claims, which neared their pre-Hurricane Katrina levels. Only 19,000 layoffs attributed to hurricane-related causes last week. A total of 323,000 new unemployment claims were filed, the lowest weekly total since before Katrina hit the Gulf Coast region.

Merck & Co. jumped $1.07, or 3.8 percent, to $29.48 after a New Jersey jury found the drugmaker did not commit consumer fraud and did not hide risks associated with its Vioxx painkiller from patients and doctors. The decision was a major victory for the drug maker and could potentially forestall other lawsuits related to heart problems stemming from the drug.

Nordstrom added 85 cents to $36.60 after it posted strong October sales that beat analysts' projections. Costco also beat expectations with 10 percent sales growth in stores open at least a year, and gained 16 cents to $48.67. Yet Wal-Mart (WMT) fell 11 cents to $47.45 despite reporting a 4.3 percent increase in same-store sales.

Some specialty clothing retailers, however, saw their sales drop, with Gap Inc. (GPS) and Limited Brands Inc. both reporting lower-than-expected sales for the month. Gap nonetheless climbed 10 cents to $17.10, while Limited rose 18 cents to $20.57.

In earnings news, Comcast Corp. fell $1.44 to $27.36 after reporting flat earnings for the third quarter, despite a nearly $500 million increase in revenues, and missing Wall Street's profit forecasts by 4 cents per share. The company also lowered its cash-flow estimates for the full year.

Guidant Corp. (GDT) slid $2.83 to $57.57 after New York Attorney General Eliot Spitzer filed a civil suit against the company, accusing it of failing to inform physicians of problems with its medical devices. The suit comes one day after would-be acquirer Johnson & Johnson signaled it might pull out of the $25.4 billion deal due to Guidant's possible liability issues stemming from the company's medical device recalls. Johnson & Johnson slipped 10 cents to $61.20.

Advancing issues narrowly outnumbered decliners on the New York Stock Exchange, where volume came to 2 billion shares, compared to 1.99 billion traded Wednesday.

The Russell 2000 index of smaller companies rose 1.72, or 0.26 percent, to 658.77.

Overseas, Japan's Nikkei stock average rose 0.19 percent. In Europe, Britain's FTSE 100 was up 1.37 percent, France's CAC-40 surged 1.63 percent for the session, and Germany's DAX index climbed 1.13 percent.