Updated from 4:04 p.m. EST

Stocks rallied Thursday, as solid retail data relieved some concern about a downturn in consumer spending ahead of the holiday season. Investors also embraced

IBM's

(IBM) - Get Report

profit affirmation and a megamerger in the consumer lending sector.

The

Dow Jones Industrial Average

ended up 144 points, or 1.7%, at 8542.13, while the

Nasdaq

rose 50 points, or 3.7%, to 1411.5. The

S&P 500

gained 22 points, or 2.5%, to 904.3.

The government said retail sales were unchanged in October, reflecting weakness in auto sales. Excluding those, sales rose 0.7% -- a better-than-expected result that could bode well for the holidays, although the number was boosted by the onset of colder weather. Separately, new claims for jobless benefits fell to 388,000 in the latest week, also a slightly stronger-than-expected number.

"It is clear that investors are focused on the economy," said Hugh Johnson, chief investment officer at First Albany. "But we are not out of the woods yet. The market will depend on the numbers -- industrial production, housing starts, and personal income -- that we get over the next few weeks."

Peter Kretzmer, an economist, at Bank of America, said the large drop in vehicle sales indicated flat growth in consumer spending in the fourth quarter. But he was otherwise sanguine about the report.

"Signs of new momentum outside of vehicles in October and apparently so far this month are a positive sign for renewed expansion ahead," Kretzmer wrote in a research note.

Trading volume was moderate, with about 1.5 billion shares changing hands on the

New York Stock Exchange

and the Nasdaq. Among the best performing sectors of the session were the networking, computer, retail, brokerage and semiconductor groups.

Although the market has been volatile in the past week, some experts were optimistic about its direction. "I think that the indices are consolidating," said Tom Schrader, a trader at Legg Mason, who added that they have held above their 50-day moving averages for almost four weeks, a bullish trend.

Household International

(HI) - Get Report

agreed to be acquired Thursday by

HSBC

for $14 billion, a huge premium over its market cap, which is sitting near a 7-year low. HSBC will exchange stock worth $30.04 for each Household share. Household rose 22.4% at $27.50.

IBM lifted 1.7% at $80.72 after its chief financial officer told an analyst conference Wednesday night that 2003 earnings and revenue estimates are reasonable and predicted an eventual upturn in IT spending. John Joyce refused to provide guidance for the fourth quarter, which many analysts saw as a tacit affirmation.

Elsewhere in technology,

Intel

(INTC) - Get Report

gained 6% at $19.21 after its board authorized a stock buyback of 480 million shares.

Several companies that sell at the retail level reported solid earnings Thursday.

Target

(TGT) - Get Report

said third-quarter earnings were 30 cents a share, 2 cents better than expected, on a 9.2% rise in revenue, boosting it 11.5% to $33.49.

Shares of

American Eagle

( AEOS) rose 5.9% to $18, after it said third-quarter earnings were 37 cents a share, topping estimates by 3 cents.

And car-parts provider

Pep Boys

(PBY) - Get Report

said third quarter earnings topped estimates by a penny. Same-store sales were down 1.3% in the quarter, however, due to weakness in tire sales. The shares were lower 7.7% at $11.19.

Meanwhile, Dow component

Honeywell

(HON) - Get Report

finished off 8.3% at $23.16, on news that it may need to contribute up to $900 million to its employee pension plan, which is now on track to finish the year underfunded.

Treasuries were lower, with the 10-year note losing 1 25/32 and pushing its yield up to 4.05%.

Overseas, London's FTSE 100 rose 0.7% to 4057 and Germany's Xetra DAX gained 4% to 3188.4. In Asia, Japan's Nikkei lost 1.6% to 8303, while Hong Kong's Hang Seng added 1.3% to 9741.