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Updated from 4:11 p.m. EDT

Stocks ended higher Wednesday as positive earnings and economic news, optimistic research calls and merger deals helped the major averages add to the previous day's rally.

The

Dow Jones Industrial Average

rose 45.19 points, or 0.5%, to 9568.46. The

Nasdaq

gained 11.42 points, or 0.6%, to 1852.90, and the

S&P 500

climbed 4.28 points, or 0.4%, to 1026.27.

The indices got a boost in the afternoon from the

Federal Reserve's

latest Beige Book survey, which pointed to improvement in the economy over the summer.

"Reports from the 12 Fed districts indicate the economy continued to improve in July and August," the Fed said. Eleven districts said activity levels increased, with improvement broad-based in some regions. The report showed strength in consumer and manufacturing activity.

Treasuries were up slightly, despite optimism about an economic recovery and concern about higher interest rates. The 10-year note added 1/32 to 97 8/32, yielding 4.60%. Bonds sold off more than a point in Tuesday's session on news of improvement in the manufacturing sector.

Experts said Wednesday's stock gains, which occurred on strong volume, bode well for the future.

"We are coming out of an eight-week consolidation period," said Richard Dickson, a technical analyst at Lowry Research. "I would not be surprised to see the market go up from here. We would not be seeing such heavy volume and good breadth if the rally were about to roll over."

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About 1.63 billion shares changed hands on the

New York Stock Exchange

, while approximately 2.3 billion shares traded on the Nasdaq. Breadth was positive, as advancers led decliners 2-to-1 on the Big Board. Winners edged losers on the Nasdaq.

The Dow and the S&P closed at their best levels in almost 15 months on Tuesday, while the Nasdaq hit its highest point since April 2002. "The market is on a nice run," said Peter Coolidge, a trader at Deltec Asset Management. "It will take a breather, but it is hard to say what will cause that. In the meantime, there are a lot more participants right now, and it looks like investors are adding to positions."

U.S. chain-store sales rose 4.6% in the week ended Aug. 30, according to Instinet Research's Redbook report, and the news lifted retail stocks. Among other sectors, oil, high-tech and transportation issues ended higher, while semiconductor, drug, banking and gold stocks finished lower.

In other news, the government said construction spending was up 0.2% in July to a seasonally adjusted $879.8 billion. The increase was below economists' forecasts for a 0.5% gain, however.

Investors will get further clarity on the state of the economy on Friday, when the government releases monthly employment statistics. "We need to see the job picture improving in order for the market to keep adding fuel to the rally," said Coolidge.

Elsewhere, New York Attorney General Eliot Spitzer announced a $40 million settlement with hedge fund

Canary Capital Partners

over allegations it engaged in illegal trading in mutual fund shares sold by a number of Wall Street firms, including

Bank of America's

(BAC) - Get Bank of America Corp Report

Nation's Funds,

Bank One

(ONE) - Get OneSmart International Education Group Ltd Report

and

Janus

(JNS)

.

One of the top corporate stories of the day involved a merger of two pharmacy-benefits providers.

Caremark

(CMX)

agreed to acquire

AdvancePCS

(ADVP)

in a mostly stock deal valued at around $6 billion. The companies said they will have combined annual revenue of about $23 billion. Caremark dropped $2.10, or 8.3%, to $23.30, while AdvancePCS rallied $7.40, or 18.5%, to $47.45.

On the earnings front,

Qwest Communications

(Q)

reported a narrower-than-expected quarterly loss and said it was on track to meet its financial objectives for 2003. The company also said the restatement of its 2000 and 2001 financial results is "essentially complete." Shares lost 24 cents, or 5.2%, to $4.40.

Meanwhile,

Heinz

(HNZ)

matched estimates, posting first-quarter earnings from continuing operations of 51 cents a share, excluding items. Heinz increased 47 cents, or 1.4%, to $33.46.

Video-game software manufacturer

Take-Two

(TTWO) - Get Take-Two Interactive Software, Inc. Report

topped Wall Street's expectations by a penny and said fiscal 2003 earnings and revenue should be a little better than consensus estimates. Take-Two added $6.53, or 22%, to $36.38.

As for companies providing forecasts,

Coach

(COH)

,

Adtran

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and

Electronics for Imaging

(EFII) - Get Electronics For Imaging, Inc. Report

were raising their guidance, and

Fairchild Semiconductor

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affirmed its outlook.

Avon

(AVP) - Get Avon Products, Inc. Report

,

Ingram Micro

(IM)

,

PepsiCo

(PEP) - Get PepsiCo, Inc. Report

and

Wendy's

(WEN) - Get Wendy's Company Report

also confirmed their prior expectations, but

Office Depot

(ODP) - Get ODP Corporation Report

said unfavorable currency exchange rates could reduce its third-quarter earnings by a couple of cents.

Nortel

(NT)

got some good news, as Verizon Wireless selected the telecom-equipment provider for a multiyear contract valued at around $1 billion. Nortel has been providing wireless equipment to Verizon Wireless and its predecessor companies since 1996. Nortel gained 30 cents, or 9.3%, to $3.52.

Other networkers were higher, as well.

JDS Uniphase

(JDSU)

advanced 9 cents, or 2.6%, to $3.59, while

Ciena

(CIEN) - Get Ciena Corporation Report

ended up 32 cents, or 4.9%, to $6.83.

Cisco

(CSCO) - Get Cisco Systems, Inc. Report

rose 68 cents, or 3.5%, to $20.24 after CEO John Chambers reportedly said that August orders were better than expected. Still, Chambers cautioned investors not to get too excited about the update, according to news accounts.

Analysts were busy again, with a number of actions focusing on high-profile companies. J.P. Morgan upgraded

GE

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to neutral from underweight, while Prudential cut

Morgan Stanley

(MWD)

to hold from buy.

Separately, Wachovia upgraded

Oracle

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to outperform and raised its valuation range on the company's stock to $13 to $16. Piper Jaffray lifted its rating on

Chiron

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to outperform and boosted its target price to $61.

Credit Suisse First Boston raised its rating on the enterprise software group, which includes

Siebel Systems

(SEBL)

,

Intuit

(INTU) - Get Intuit Inc. Report

,

Adobe Systems

(ADBE) - Get Adobe Inc. Report

and

BEA Systems

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, to overweight from market weight, saying it believes the sector will perform better than the overall market during the next 12 months.

Downgrades hit

Reuters

(RTRSY)

,

Archer Daniels Midland

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and

ConocoPhillips

(COP) - Get ConocoPhillips Report

.

Rite Aid

(RAD) - Get Rite Aid Corporation Report

was cut to sell at Merrill Lynch. Rite Aid fell 23 cents, or 4.4%, to $5.02.

Overseas indices ended higher. London's FTSE 100 gained 1.4% to 4262.1, and Germany's Xetra DAX rose 2.25% to 3647.5. Tokyo's Nikkei rose 0.2% to 10,716, and Hong Kong's Hang Seng climbed 1.5% to 11,102. The dollar was higher against the euro, but lower against the yen.