Traders were in upbeat mood on Thursday

The benchmark Dow Jones share index settled 1.2% higher at 9,659 on Thursday, its first close above the symbolic 9,600 mark since 18 June 2002.

The Nasdaq index of technology stocks reached an even more important milestone, closing 1.4% higher at 1,909.5, the first time it has settled above 1,900 in 18 months.

The rally, which came despite the resignation on Wednesday of New York Stock Exchange chief Richard Grasso, reflected renewed optimism that the US economy is on the mend after nearly three years of sluggish growth.

Jobs data cheer

Investor sentiment was lifted by news that the Index of Leading Economic Indicators - a closely-watched barometer of future economic activity - rose by 0.4% in August, in line with Wall Street forecasts.

Fresh jobs data showing that new claims for unemployment benefit fell last week by 33,000 to 399,000 - below the key 400,000 level - also brightened the mood.

Persistently high unemployment has been the most troubling feature of the US economy in recent months, taking much of the gloss off relatively encouraging overall growth figures.

Thursday's rally built on initial strong gains triggered by the US Federal Reserve's decision on Tuesday to keep interest rates on hold at their current 48-year low of 1%.

"We've got some decent economic data," said Tim Smalls, a trader at SG Cowen securities.

"The jobless claims were a little better than expected. That's benign enough for the market to move higher."

Caution

However, analysts warned that with expectations of a rebound now fully priced in, share prices are unlikely to rise further unless the market sees unambiguous evidence that a recovery is indeed under way.

Investors are hoping that US company results for the July to September quarter, due out in the coming weeks, will provide the confirmation that they are looking for.

"If earnings exceed expectations, that could send prices higher," said Subodh Kumar, chief investment strategist at CIBC World Markets.

US shares have been rising steadily since mid-March, when the prospect of a US-led military victory in Iraq helped pull the stock market out of a three year slide which had slashed its value by a third from its January 2000 peak of 11,722.

The slump started with a collapse in business investment following the excesses of the late 1990s technology and telecoms boom.

But it was exacerbated over the next two years by the 11 September attacks and a wave of corporate scandals, including the Enron and Worldcom affairs.