Updated from 4:08 p.m. EST

Stocks stormed to a higher close Wednesday, led by particular strength in technology issues, as investors celebrated a wave of encouraging economic reports ahead of the Thanksgiving holiday.

The

Dow Jones Industrial Average closed up 255 points, or 2.9%, at 8931. The

Nasdaq gained 44 points, or 3%, to 1488. The

S&P 500 added 26 points, or 2.8%, to 938. The rally sets up an eighth straight week of gains for the major averages.

"This rally is being driven by an improving economic landscape," said Keith Keenan, vice president of institutional trading and a partner at brokerage Wall Street Access. "Tuesday's economic data weren't nearly as bullish as today's -- the numbers today were much stronger than the bulls even anticipated."

Technology set the pace early, and most other sectors followed suit, including financial, biotech, energy, retail, transportation, drug, homebuilding and restaurants. The Philadelphia Semiconductor Index climbed 6.7%, the AMEX Biotech Index jumped 3.8% and the AMEX Networking Index rose 3.5%. The SOX is up 75% from its early October lows. Gold shares were the only group showing any weakness. Advancers trounced decliners 3 to 1 on the New York Stock Exchange, where 1.35 billion shares changed hands. On the Nasdaq, winners beat losers 11 to 5 on volume of 1.72 billion shares.

"Clearly, performance anxiety is playing a role in the market, but there are also real buyers around," Keenan said. "The rally is very broad based."

Trader James DePorre, a

RealMoney.com

contributor, noted, "We have strength across the board, and the shorts are getting run over in a frenzy of optimism about the impending economic turn. The fact that a number of participants are taking vacation days really helps the momentum grow when we get a flow of positive news. The bears simply step aside and let the bulls run."

Investors had an unusually large amount of economic data to digest. The University of Michigan issued its final report on

consumer sentiment for November. The index came in at 84.2, compared with 80.6 in October. Economists were expecting a reading of 85.0. Separately, a regional report on manufacturing activity showed a decent spike. The

Chicago PMIrose to 54.3 in November from 45.9 in October. And

durable goods orders exceeded expectations, growing 2.8%.

Earlier, the Labor Department said

initial jobless claims for the week ended Nov. 23 fell to 364,000, a better result than had been forecast, and the fewest claims since Feb. 17, 2001. Economists were expecting the number of first-time insurance claims to rise to 383,000.

"The market is discounting better economic data going forward," Keenan said. "The strong Chicago purchasing mangers' number foreshadows stronger manufacturing data on Monday." The ISM manufacturing survey is due on Monday, and most analysts are raising their estimates based on the Chicago PMI number, the trader said. Analysts are projecting the ISM to come in at 49.5, according to

Briefing.com

.

In corporate news, semiconductor-equipment maker

Novellus Systems

(NVLS)

affirmed its fourth-quarter outlook Tuesday, saying it expects lower revenue but higher net income, thanks to cost cutting. The company said net bookings have "firmed" and are targeted at $200 million to $210 million, up about 5% from previous expectations. The stock traded up 8.6% to close at $37.43.

Server maker

Sun Microsystems

(SUNW) - Get Report

said it expects a seasonal uptick in sales for the quarter currently under way. In a midquarter update, management predicted revenue will be in line with consensus estimates of $2.9 billion, or a 6.2% sequential gain. But Sun also said gross margins were likely to fall slightly from last quarter's 41.2%, mainly due to continued competitive pricing. Sun's shares climbed 5.6% to $3.94.

Chartered Semiconductor

(CHRT)

announced a strategic partnership with

IBM

(IBM) - Get Report

Wednesday in an attempt to catch up with rivals

Taiwan Semiconductor

(TSM) - Get Report

and

United Microelectronics

(UMC) - Get Report

and pare costs. Chartered will team up with Big Blue to develop next-generation microchip technology and share manufacturing facilities. Shares of Chartered jumped 33% to $6.63 on the news.

General Motors

(GM) - Get Report

, a Dow component, announced that its Saab unit will cut 1,300 jobs, or 20% of its workforce, in an attempt to cut costs and clean up the money-losing unit's balance sheet. GM's shares rose 6.2% to $39.99.

In the drug sector

Eli Lilly

(LLY) - Get Report

received regulatory approval from the Food and Drug Administration for its Strattera drug, a treatment for attention deficit hyperactivity disorder. The announcement comes on the heels of Tuesday's approval of its osteoporosis drug Forteo. The stock surged 7.8% to $69.

Bucking the overwhelmingly positive trend was

Transkaryotic Therapies

(TKTX)

, which saw its shares plunge nearly 32% to $9.60 after its Fabry Disease candidate, Replagal, failed to meet efficacy expectations in early clinical trials.

Elsewhere,

Schering-Plough

(SGP)

received final approval from the FDA Wednesday to begin selling its allergy treatment, Claritin, without a prescription. Its shares tacked on 3 cents to $21.98.

U.S. Treasury issues moved lower in response to positive economic data, with the 10-year note losing 1 17/32 to yield 4.25%. The 30-year bond was down 2 22/32, yielding 5.11%.

European markets mirrored Wall Street's gains, with London's FTSE 100 adding 1.7% to 4138 and Germany's Xetra DAX rising 4% to 3320. In Asia, Japan's Nikkei rose 0.6% to 8875, while Hong Kong's Hang Seng closed down 0.5% to 9944.

On Tuesday, the Dow dropped 173 points, or 2%, to 8676, while the Nasdaq fell 37 points, or 2.5%, to 1444. The S&P 500 dropped 20 points, or 2.1%, to 913.