The dollar rose on better-than-expected economic data and the Federal Reserve's apparent resolve to monitor inflation. The Commerce Department said consumer spending rose 0.4 percent in March, more than predicted, and the Institute for Supply Management said U.S. manufacturing contracted in April by a bit less than anticipated.

The readings were not all positive - consumer spending rose mainly due to rising energy and food prices. The ISM's report also indicated that companies are hurting from climbing costs.

But the dollar, which has recently strengthened after a protracted decline, rallied anyway, pushing the euro down more than 1 percent to $1.5461 in late trading. Trading was thin, with major currency markets in London and elsewhere closed for the May Day holiday, but the dollar's advance helped crude oil fall briefly near $110 a barrel and then settle at $112.52. That alleviated some of the inflation-related anxieties in the market, given that crude recently traded at a record near $120 a barrel.

"I don't know if it's all turned around, but I think oil got out of control," said Todd Leone, managing director of equity trading at Cowen & Co.

The dollar's rise comes a day after the Fed lowered key interest rates by a quarter-point, but suggested the economy should keep growing moderately, while inflation is the growing concern.

"What we're seeing is that maybe the economy is not falling off a cliff, but perhaps leveling off," said Peter Cardillo, chief market economist at New York-based brokerage house Avalon Partners Inc. "I think the Fed (rate-cutting campaign) is over with, even though the Fed's statement didn't say that."

The economic assessment statement accompanying the Fed's rate decision was unclear about its policy going forward, but it has been widely believed that the central bank would pause following a string of cuts that lowered rates by 3 percentage points since last summer.

On Thursday, banks, homebuilders, chip makers and retailers surged, after getting battered earlier this year due to worries about the mortgage crisis and its effect on the global economy.

According to preliminary calculations, the Dow rose 189.87, or 1.48 percent, to 13,010.00, after briefly rising more than 200 points.

Broader stock indicators also advanced. The Standard & Poor's 500 index rose 23.75, or 1.71 percent, to 1,409.34 - its first settlement above 1,400 since Jan. 14. The Nasdaq composite index climbed 67.91, or 2.81 percent, to 2,480.71, its highest close since Jan. 10.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.75 percent from 3.73 percent late Wednesday.

As the dollar moved higher against other currencies, gold prices dropped.

Investors are predicting another gloomy reading on U.S. employment on Friday. The Labor Department's report is expected to show a 75,000 net loss in jobs for April - which would be the fourth straight month of losses - and a rise in unemployment to 5.2 percent from 5.1 percent in March. In a negative sign ahead of that data, the government said Thursday the number of newly laid off workers filing claims for unemployment benefits increased by a greater-than-expected 35,000 last week.

However, stock market participants seem to have already accounted for the current economic weakness. With the government sending stimulus checks to taxpayers and Fed rate cuts still working their way through the financial system, many investors are confident the economy will rebound in the second half of the year.

Exxon Mobil Corp., one of the 30 Dow components, saw its shares decline $3.37, or 3.6 percent, to $89.70, after releasing a disappointing earnings report. Exxon Mobil's profit rose 17 percent to $11 billion - not as high as analysts expected, despite record-high oil prices during the first quarter. Lower production volumes caused the company's profit margins to shrink.

But on the whole, corporate profits have been coming in a bit stronger over the past few weeks than the market had expected. And meanwhile, spreads between rates on riskier securities and rates on safer issues have been narrowing, implying that the credit markets are improving and getting back to normal.

After the Fed's rate cut Wednesday, that pattern continued Thursday. Bank stocks benefited - Citigroup Inc. rose $1.04, or 4.2 percent, to $25.99; Bank of America Corp. rose $1.85, or 4.9 percent, to $39.39; and JPMorgan Chase & Co. rose $1.60, or 3.4 percent, to $49.25.

In another sign that the financial sector is on the mend, the Fed said late Thursday that investment firms averaged a relatively low $18.6 billion in daily borrowing over the past week from the Fed's emergency lending program. Earlier Thursday, the Fed auctioned off $24.12 billion in super-safe Treasury securities to big investment firms.

The Russell 2000 index of smaller companies rose 13.57, or 1.89 percent, to 729.75.

Advancing issues more than doubled decliners on the New York Stock Exchange, where volume came to 1.40 billion shares.

Overseas, Japan's Nikkei stock average fell 0.60 percent. Markets in much of the world, including Europe and Hong Kong, were closed for May Day.

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