Traders focused on the news from Washington, largely brushing off weak economic data and a profit warning from General Electric.

The Dow Jones Industrial Average rallied 196.89 points, or 1.82 per cent, to close at 11,022.06 and the Nasdaq composite jumped 30.89 points, or 1.43 per cent, to 2,186.57.

The Standard & Poor's broad-market index increased 23.31 points, 1.97 per cent, to 1,209.18.

Optimism was fuelled by news that lawmakers in Washington were moving closer to a deal after President George W. Bush appealed for passage of a 700-billion-dollar plan to buy up distressed assets that are clogging the financial system.

'My hope is that we can reach an agreement very shortly,' the president said as he met with top lawmakers as well as White House rivals John McCain and Barack Obama in his cabinet room.

'Expectations that a pact will be reached on Capitol Hill helped the market overcome bad news from General Electric and weak economic data,' said Mr Al Goldman at Wachovia Securities.

Mr Fred Dickson at DA Davidson & Co said the plan could provide a major boost to the economic and market outlook.

'Quick implementation of the rescue programme will probably trigger a significant positive reaction in the stock market,' he said.

'However, investors will probably quickly settle down and realise we still have to deal with a very slow growth economy ... We believe this will be a very slow process which may extend for two to three years or more. We don't see the passage of the rescue package as the catalyst that will ignite a huge multiyear bull market in the stock market.'

The market was able to overlook what would normally be seen as troubling economic news.

Orders for durable goods - big-ticket manufactured items - fell a sharp 4.5 per cent on weakness in aircraft and auto demand. A separate report showed weekly unemployment claims surged by 32,000 to 493,000 in the past week, highlighting worries about the labor market and hiring.

General Electric was in focus after the US conglomerate cut its third-quarter and full-year earnings guidance due to the difficult conditions in the financial markets. GE, which has a large finance arm, overcame early weakness and rose 4.4 per cent to US$25.68 (S$36.54).

Among other key shares, Citigroup rallied 2.4 per cent to US$19.41 and JPMorgan Chase leapt 7.3 per cent to US$43.46 on hopes for the government bank rescue deal.

The yield on the 10-year US Treasury bond rose to 3.862 per cent from 3.771 per cent on Wednesday while that on the 30-year bond increased to 4.414 per cent against 4.378 per cent. Bond yields and prices move in opposite directions. -- AFP