Updated from 4:03 p.m. EST

Blue chips steamed to new four-and-a-half-year highs Thursday, as a tame reading on inflation pushed down bond yields and another brokerage reported blowout earnings. Tech shares eased, however, as rising oil prices limited the appetite for risk.

The Dow Jones Industrial Average ended the session up 43.47 points, or 0.4%, to 11,253.24, while the S&P 500 gained 2.31 points, or 0.2%, to 1305.33. The Nasdaq ended the day down 12.28 points, or 0.5%, to 2,299.56. The Dow is now up about 180 points on the week.

"The good news in the morning was absorbed by the marketplace, which has had a nice run higher," says Peter Cardillo, chief market analyst with SW Bach & Co. "Plus we're approaching options expiration tomorrow, and that has added to earlier advances."

Cardillo said that he believes the market has room to rise unless unforeseen geopolitical problems should flare up and "knock the wind out of its sails."

Before the bell, the Labor Department soothed rate-sensitive investors with news that the February consumer price index rose by 0.1% in the month, in line with Wall Street forecasts, after climbing 0.7% in the previous month.

More importantly, the so-called "core" CPI, which excludes food and energy costs, rose by 0.1%, vs. forecasts for a 0.2% gain. Core CPI grew by 0.2% in January.

"Today's rally was in the lower-than-expected core CPI number, says Peter Boockvar, equity strategist at Miller Tabak. "The market is breathing a sigh of relief."

Boockvar notes that the current rally is similar to those staged in November and in January, when traders also believed that the Fed was nearly done with its rate-hike campaign, and added that he does not think it is near overbought territory.

The bond market also liked the CPI report, with the benchmark 10-year note ending the session up 22/32 of a point to yield 4.64%. The fed funds futures contract still sees 100% odds for the overnight lending rate to hit 4.75% on March 28, but Boockvar says chances have been reduced that the Fed will take the funds rate higher in May or that it will exceed 5.0% this year.

Oil prices kept the rally in check, with April crude ending the day up $1.41 to $63.58 a barrel on the Nymex following the largest air assault in Iraq since the America-led invasion in 2003.

Katie Townshend, chief market technician at MKM Partners, says the lack of leadership from the tech sector is a concern. Chip sector weakness pushed the Philadelphia semiconductor index down 3.2% Thursday.

"Typically, bull markets need support leadership from the tech sector to be sustained beyond the short term," Townshend says. "But while we're mindful of those numbers, we are also aware that positive short-term momentum can still take stocks to new highs."

She adds that the market could finish the week strong, now that it has broken out above key technical and psychological levels, which she identifies at 1,300 for the S&P and 11,000 for the Dow.

To view Kara Wetzel's video take on today's market, click here .

The tame inflation data took the dollar down to a six-week low against the euro and lower against the yen. Rising interest rates make dollar-denominated assets attractive to overseas investors and spur dollar-buying, so reduced chances for more Fed rate hikes took some wind out of the greenback's sails.

Comex gold for April delivery ended the day up $1.00 to $555.40 an ounce.

A report on housing starts was also strong, coming in at an annualized rate of 2.12 million for February, vs. expectations for starts to fall to 2.03 million.

Homebuilders were one of the best-performing sectors of the day, pushing the Dow Jones home construction index up 2.2%.

In other economic data, initial jobless claims rose by 5,000 in the week ending March 11, to 309,000. This is higher than Wall Street's estimated 298,000 and the largest count year-to-date.

The Philadelphia Fed bank released its March business survey, saying activity in the mid-Atlantic region's manufacturing sector continued to grow.

"The general activity index decreased modestly this month, but indicators for new orders and shipments improved and the employment index remained positive," the Philly Fed said in a statement. "Firms continued to report higher prices for inputs and for their final manufactured goods, but the survey's diffusion indexes suggest cost pressures are continuing to moderate. The region's manufacturing executives expect growth to continue but were less optimistic about future conditions than they were last month."

The survey's broadest measure of manufacturing conditions, the diffusion index of current activity, fell to 12.3 this month from 15.4 in February. That means about 22% of the firms reported increases in activity, while 10% reported declines. The Philly Fed survey gathers data on the manufacturing sector in Pennsylvania, southern New Jersey and Delaware.

The Philadelphia index's employment component weighed on the headline number. Central bankers have said they are eyeing employment data for signs that the nation has hit "full employment," the greatest employment level the nation can handle before wage inflation sets in.

The result was a pleasant surprise after the New York Fed's manufacturing index unexpectedly rose to 31.2 from 21 on Wednesday, vs. forecasts for a drop to 18.9, raising worries that the Philly Fed could surprise to the upside.

Market breadth was mixed, with 1.65 billion shares changing hands on the NYSE as winners beat losers 2 to 1. On the Nasdaq, decliners barely edged out advancers on volume of 2.38 billion shares.

Still, amid all the positive sentiment, Winnebago Industries ( WGO), ConAgra Foods ( CAG) and Cost Plus ( CPWM) traded lower on earnings worries and restructuring news.

After rising earlier in the session Bear Stearns ( BSC) turned lower on news that it was fined $250 million by the New York Stock Exchange and the Securities and Exchange Commission for fraudulent market timing and late trading of mutual funds.

Early morning the stock rallied after the firm said that first-quarter earnings rose 36% from a year ago to $379 million, or $3.54 a share, beating estimates by 59 cents. Revenue rose 19% to $2.2 billion, also wiping out forecasts.

Brokerage earnings have been a bullish catalyst all week following stellar quarters at Goldman Sachs ( GS) and Lehman ( LEH).

"I think the economy can withstand even a 5.5% fed funds rate and continue to grow," says Brian Wesbury, chief economist at First Trust Advisers. He says that robust earnings results support this view.

"The Fed has been raising rates for two-and-a-half years, we've had high energy prices, and yet the economy continues to grow, consumers spend, and businesses invest," says Wesbury. "It's like a slow lifting of the curtain ... that the Fed has not tightened far enough to kill the economy."

Wednesday's solid advance was in part due to optimistic commentary in the Federal Reserve's beige book report, and bullish earnings news helped drive the rally.

Atlanta Fed President Jack Guynn spoke positively on the economy late Wednesday. "I continue to think the most likely path for the economy is sustained GDP growth with inflation and inflation expectations contained within acceptable bounds," he reportedly said. "But I, like others, will be watching very carefully as events unfold."

Wesbury believes the stock market is still significantly undervalued, and that "as a result, any sustained bear market is very difficult."

Shares of Altria ( MO) and its Kraft ( KFT) unit both rose after Altria said it would collect about $1 billion following a tax audit.

Barnes & Noble ( BKS) stock soared after the No. 1 bookseller's fourth-quarter profits climbed 6% from a year ago, helped by strong holiday-season book sales.

The company posted net income of $1.76 per share, up from $1.56 a share a year earlier, and beat Wall Street estimates by a penny.

Two specialty retailers traded moderately higher late Wednesday after reporting decent quarterly earnings. Hot Topic ( HOTT) said profits fell 39% from a year ago but beat estimates by 2 cents, excluding a charge. Zumiez ( ZUMZ) posted a 59% rise in quarterly income, guided higher for 2006 and split its stock, 2 for 1.

On the other side of the ledger, Winnebago's stock sank after the company said second-quarter net income fell 39% from a year ago, a far cry from the 15% earnings growth expected by Wall Street over the next five years. The motor-homes manufacturer reported earnings of 25 cents a share, missing estimates by 13 cents.

ConAgra announced an aggressive restructuring plan aimed to strengthen its long-term growth. But the near-term effects of measures that include cutting its dividend by about 34% and selling its seafood and cheese businesses roiled Wall Street, and the nation's leading packaged foods company saw its shares sink.

Cost Plus warned that its fourth-quarter per-share earnings results would come in at the low end of its previously guided $0.98-$1.08 range.

Elsewhere Thursday, a report says Google ( GOOG) plans to launch a service that would standardize a way for traditional retailers to build an online presence. The Internet company is expected to test Google Base, a comparison shopping service that could eventually extend into real estate, the Financial Times says.

Meanwhile, a JP Morgan downgrade of Ford ( F) was weighing on sentiment. The brokerage cut the automaker to underweight, saying its product mix is weakening and its F-150 pickup is vulnerable to competition.

In other ratings moves, Merrill upgraded Qualcomm ( QCOM) to buy from hold, and Kaufman initiated Broadcom ( BRCM).