A flurry of positive earnings reports, surprisingly strong economic indications, an upbeat Alan Greenspan, and merger news shook the market from its stupor Thursday as the major indices rebounded from recent yearly lows.

All the right conditions were in place. Strong earnings and/or guidance came from

Nokia

(NOK) - Get Report

SAP

(SAP) - Get Report

,

UPS

(UPS) - Get Report

,

Cummins

(CMI) - Get Report

, and

Schering-Plough

(SGP)

this morning.

Motorola

(MOT)

,

Allstate

(ALS)

,

Capital One

(ONE) - Get Report

and

Yum Brands

(YUM) - Get Report

provided the punch overnight.

Merger activity also fueled upbeat sentiment with a $14 billion buyout of

Allied Domecq

(AED)

, a $12.7 billion deal for

Adelphia

, and, of course, the $3.5 billion merger between the

New York Stock Exchange

and

Archipelago

(AX) - Get Report

, which jumped 62%.

Then a plunge in weekly jobless claims and a surprising jump in the Philadelphia Fed's regional index of business activity had the market forget all the recent talk about a "soft patch" in the economy.

And to make the picture perfect for the bulls,

Federal Reserve

Chairman Alan Greenspan, backed by two other Fed speakers, said the U.S. economy is expanding at a "reasonably good pace."

The result? The

Dow Jones Industrial Average

jumped 2% to 10,218.60, and the

S&P 500

gained 2% to 1159.95. The

Nasdaq Composite

posted the biggest gain, rising 2.5% to 1962.41. And as a rising tide lifts all boats, even

IBM

(IBM) - Get Report

shares gained after falling for 13 straight sessions.

Market internals reflected the strength of the advance. Up volume was 82% of the Big Board's 2.3 billion share total, and gaining stocks led 3 to 1. Upside volume was an even healthier 85% of the Nasdaq's 2 billion-share tally, and gainers there led 11 to 4.

The rally gave optimists hope that Thursday's decline marked a successful test of the recent lows and the end of the selling. A

blockbuster postclose report from

Google

(GOOG) - Get Report

is likely to help maintain the upbeat mood Friday.

For a change, market participants focused on solid corporate earnings as the day's economic news quelled concerns about an economic slowdown, at least for now.

Glass Half Full

Both the Dow and S&P 500 made new lows for the year on Wednesday, as fears over inflation were stoked by a spike in consumer prices in March. But inflation seemed far from investors' minds on Thursday; at least in the equities arena.

Instead, the market was relieved that all the recent indications that the U.S. economy may be hitting a "soft patch" -- the weak March payrolls and retail sales, as well the ever-rising trade deficit -- may have been overblown.

"The market has been afraid of rising interest rates, inflation and slowing growth," says Jim Awad, chairman of Awad Asset Management. "But as long as we have growth, the market can sustain the other headwinds."

Treasuries fell (sharply), with the benchmark 10-year Treasury note down 28/32, its yield rising to 4.30%.

The data and the Fed talk -- Cleveland Fed president Sandra Pianalto said that growth remains "healthy" -- prompted Lehman Brothers economist Drew Matus to say that the soft patch was "wishful thinking" on the part of some in the market who were hoping that the Fed would be prompted to halt its tightening earlier than thought.

But has the debate over slower growth really ended? After all, many economists cut their first-quarter growth forecasts after the March retail sales and trade deficit figures. The extent of slower-than-expected growth, which is growth nonetheless, remains to be determined.

Investors ignored another piece of economic news on Thursday. The Conference Board's March leading indicators fell 0.4%, marking their steepest decline since September 2001. "The market today is seeing the glass half-full," says Awad.

Easter Strikes Again

It seems this year's early Easter keeps playing April fool's jokes. After economists said the March holiday may have been responsible for a spike in the March consumer price index, now they're saying it may have helped produce the steep drop in this week's tally of jobless claims. March leading indicators, meanwhile, showed an unexpected increase in jobless claims.

In the wake of the CPI, much was made about districts noticing rising price pressures in the Fed's beige book. But little attention was paid to this other part, mentioned here Wednesday: "In two-thirds of the districts, retail or tourism contacts expressed concern that high energy prices were already, or could soon be, damping consumer demand," the report read.

And in the department-of-ignored news Thursday, credit card giant

MBNA

(KRB)

posted a steep loss and issued a dire outlook for the rest of the year, blaming "unexpectedly high payment volumes'' from its U.S. customers.

If U.S. consumers feel they have to pay down their credit card debt, there could be more trouble for the great spending spree that accompanied lower interest rates and fueled the post-2002 economic recovery.

The U.S. consumer has been a huge driver of the economic recovery of the past few years, helped by extraordinarily low interest rates and ever-rising home equities. But the Fed's tightening and the surging price of oil since last year are undeniably strong headwinds. Markets hate uncertainty, but at this point, the growth and inflation picture does remain uncertain.

Meanwhile, retail stocks also rebounded Thursday, with the S&P retail index adding 1.78%.

In keeping with TSC's editorial policy, Godt doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send

your feedback.