After the close, Dell (DELL, Fortune 500) reported earnings that fell from a year ago and missed forecasts on sales that rose from a year ago and topped forecasts.

The Dow Jones industrial average (INDU) added 212 points, or 1.9%. The broader Standard & Poor's 500 (SPX) index added 1.5% and the Nasdaq composite (COMP) gained 1.2%.

The Dow Jones Transportation (DJTA) average rallied 2.6%, as investors boosted railroad, trucking and airline stocks in response to the falling oil prices. Lower fuel costs have a direct impact on the profits of transportation companies.

Stocks gained modestly in the morning, and the GDP report was countered by a spike in oil prices, as Tropical Storm Gustav careened toward the Gulf Coast. But, by late morning, oil prices fell as traders bet the government would release supplies from the Strategic Petroleum Reserve. Oil also declined after a report showed a jump in natural gas supplies last week.

The turnaround in fuel prices gave stock investors their second wind, and sent Wall Street to its best levels of the session.

Leading the charge was the financial sector, which has now risen for three sessions in a row. It was the best stretch for the sector since the big stock selloff in mid-July, said Donald Selkin, chief market strategist at National Securities.

Selkin noted that Fannie Mae and Freddie Mac have risen for six sessions in a row, as fears that they are set to be taken over by the government seem to have dwindled. "The fact that the big guys are doing better is positive for the whole group," he said.

But for the overall stock market to keep climbing beyond today, the financials have to keep rising, Selkin said.

Also a plus on Thursday: "At least the market is reacting positively to better economic data, both yesterday and today," he said.

Friday brings reports on personal income and spending, manufacturing in the Midwest region and consumer sentiment.

GDP: Gross domestic product, the broadest measure of the economy, increased by a 3.3% annualized rate in the second quarter, the government reported. The revised reading improved on the initial report of 1.9% that was issued late last month, and topped expectations for a growth rate of 2.7%.

It was the best reading since the third quarter of 2007, and showed a marked improvement from the sluggish 0.9% pace in the first quarter. However, the growth was largely due to a spike in exports as a result of the weak dollar - and the more than $90 billion in economic stimulus checks that reached taxpayers during the quarter. (Full story).

"It was a bit of a relief that we saw such good trade numbers in the quarter that kept GDP growth on a positive slant, but it doesn't change anything," said Scott Anderson, a senior economist at Wells Fargo.

He explained that as global growth wanes and the dollar continues to firm up, exports will slow and the "trade effect" will dissipate. Subsequently, he expects slowing growth and flat demand through the second half of the year.

In other economic news, a separate government report showed that the number of Americans filing new claims for unemployment fell for the third week in a row, meeting expectations.

Fuel prices: Oil prices spiked to $120.50 a barrel before retreating as investors considered whether the government would access the Strategic Petroleum Reserve if Tropical Storm Gustav disrupts key production facilities in the Gulf of Mexico. (Full story).

U.S. light sweet crude oil for October delivery fell $2.56 to settle at $115.59 a barrel on the New York Mercantile Exchange.

Retail gas prices continued to drop overnight, extending the downward trend, according to a survey of gas station credit-card activity. Gas prices are down 11% from all-time highs hit in mid-July. (Full story.)

Financials: Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) shares rallied after Fannie announced management changes late Wednesday. The government-sponsored finance giant is promoting three executives and firing three executives - including its chief financial officer.

Bond insurers rallied in active trade after MBIA (MBIA) said it scooped up $184 billion in municipal bonds currently backed by privately-held insurer FGIC. The deal could mean FGIC, owned by the Blackstone Group (BX), may be able to avoid bankruptcy. The company has been on the brink of insolvency as it has scrambled to raise capital after having its ratings cut to junk status amid the credit-market collapse.

MBIA jumped 34.8% in active NYSE trade and competitor Ambac Financial (ABK) jumped 41.6%.

Other movers: Tiffany & Co. (TIF) reported stronger fiscal second-quarter sales and earnings that topped expectations and also boosted its full-year forecast.

The luxury jeweler also said that sales at stores open a year or more, a key retail measure known as same-store sales, would return to growth in the fourth quarter, which includes the holiday shopping period. Shares jumped 10.7%.

Zales (ZLC) reported a fourth-quarter loss that was narrower than expected and said quarterly sales and same-store sales rose. The jewelry retailer also forecast full-year results above current forecasts. Shares gained 20.6%.

Delta Air Lines (DAL, Fortune 500), Northwest Airlines (NWA, Fortune 500), AMR (AMR, Fortune 500) and UAL Corp (UAUA, Fortune 500) were among the big gainers in the session, following the slide in oil prices.

Twenty-nine out of 30 Dow stocks rose, with the exception of Coca-Cola. Coke (KO, Fortune 500) shares slid after Credit Suisse downgraded the stock to "neutral" from "outperform" according to reports.

Market breadth was positive and volume was light, with many Wall Street pros taking off early ahead of the long Labor Day holiday weekend.

On the New York Stock Exchange, winners topped losers by more than three-to-one on volume of 956 million shares. On the Nasdaq, advancers beat decliners by almost three-to-one on volume of 1.63 billion shares.

Other markets: In the bond market, Treasury prices slipped, raising the yield on the benchmark 10-year note to 3.78% from 3.76% late Wednesday. Prices and yields move in opposite directions.

The dollar gained, versus the euro and the yen.

COMEX gold for December delivery rose $3.20 to settle at $837.20 an ounce. 

The Dow Jones industrial average (INDU) and the broader Standard & Poor's 500 (SPX) index both added around 0.8%. The Nasdaq composite (COMP) gained 0.9%.

Investors also seemed to breathe a sigh of relief that oil prices gave up bigger session gains. Oil had spiked in the morning after a weak inventory report and in response to Tropical Storm Gustav, which is heading for the Gulf Coast.

The rise in durable goods orders was making investors feel a bit more positive about the economic outlook, said Gary Webb, CEO at Webb Financial Group. Additionally, comments from Fed officials both this morning and in recent days have implied that inflationary pressures are waning and that the central bank won't have to raise rates in the near term.

However, stocks are extremely volatile and the perception of "good news" could change swiftly, he said.

"So today the good news is outweighing the bad and that's helping people overlook oil prices," Webb said. "But this could all change by tomorrow or even the end of the day."

Stocks had rallied between mid-July and mid-August as investors welcomed a drop in crude oil prices from a record over $147 a barrel, and a recovery in the U.S. dollar.

However, in the last week or so, stocks have been struggling in a narrow range as oil prices have moved back up.

Thin trading volume is also adding to market volatility right now, with many Wall Street pros taking the last week of August off. Thursday was the lightest trading day of the year on the New York Stock Exchange, with just 820 million shares changing hands. Volume on the NYSE was 1.58 billion, also low. On both the NYSE and the Nasdaq, market breadth was positive, with advancers topping decliners by a decided margin.

Both trading volume and the attention of investors will pick up after Labor Day weekend, said Bill Flaig, portfolio manager of the Arrow Alternative Solutions Fund (ASFFX).

"Post-Labor Day, there's going to be a lot of focus on the economic news," Flaig said. In particular, investors will be looking to see if the downward trend in weekly jobless claims continues and how well retailers are holding up despite the end of the government stimulus checks.

That, in combination with a "gut check" over the financial services sector is really going to set the tone for September, he said.

Fannie Mae was among the stocks likely to be active Thursday after the company announced late Wednesday the departure of three executives, including the chief financial officer and the promotion of three other executives. (Full story)

Thursday also brings reports on second-quarter gross domestic product growth and weekly jobless claims.

Durable goods orders: Orders for big-ticket manufactured goods jumped for a second straight month, the government reported Wednesday. Orders rose 1.3% in July, easily outpacing the 0.1% gain economists were expecting, on average. The rise was in line with the upwardly revised 1.3% increase reported in June.

The strength was largely due to a rise in demand for commercial aircraft, as well as for motor vehicles. Experts don't expect demand for autos to stay strong, considering the tough industry conditions. A category of the report seen as a proxy for business spending also rose soundly, seeing its best result in three months. (Full story).

Fuel prices: While the strong durables report was a positive, investors remained concerned about the spike in oil prices as Tropical Storm Gustav neared the Gulf of Mexico and U.S. oil facilities.

Investors also took in the weekly inventory report, which showed a surprise drop in crude supplies and a bigger-than-expected decline in gas supplies. (Full story).

U.S. light crude oil for October delivery rose $1.88 to settle at $118.15 a barrel on the New York Mercantile Exchange, giving up bigger morning gains.

Retail gas prices continued to drop overnight, extending the downward trend, according to a survey of gas station credit-card activity. Gas prices are down over 10% from all-time highs hit in mid-July. (Full story.)

Financials: Shares of Fannie Mae (FNM, Fortune 500) and Freddie Mac (FRE, Fortune 500) gained for the third-straight session, as analysts questioned whether a government bailout was unavoidable. Freddie's $2 billion debt sale Monday received a positive response and some analysts think the companies may have enough capital to absorb billions of dollars in losses from bad mortgage bets, at least for the near term.

A number of financial shares rose, including Dow components AIG (AIG, Fortune 500), American Express (AXP, Fortune 500), Bank of America (BAC, Fortune 500), Citigroup (C, Fortune 500) and JP Morgan Chase (JPM, Fortune 500).

The gains were broad based, with 25 of 30 Dow components rising.

Airline stocks got hammered as oil prices rose, with air carriers' profits taking a direct hit from the rise in fuel costs. Delta Air Lines (DAL, Fortune 500), AMR (AMR, Fortune 500), Northwest Airlines (NWA, Fortune 500) and UAL Corp (UAUA, Fortune 500) all tumbled. The Amex Airline (XAL) index dropped 3%.

The rising oil prices gave a lift to oil stocks, including Valero Energy (VLO, Fortune 500), Exxon Mobil (XOM, Fortune 500) and Sunoco (SUN, Fortune 500).

In merger news, Japan's Ricoh, a copier and printer maker, will buy U.S. office-gear distributor Ikon Office Solutions (IKN).

Fed's Lockhart: In a speech Wednesday morning, the Atlanta Fed President discussed the Consumer Price Index, one of the closely watched measures of consumer inflation. He said the latest CPI was a high and worrisome number but that it is more likely to be transitory than persistent, according to reports.

Lockhart also said that the recent rise in the dollar has been helpful. The recent strength in the currency has put pressure on dollar-traded commodities, such as oil and gold.

Other markets: In the bond market, Treasury prices inched higher, lowering the yield on the benchmark 10-year note to 3.76% from 3.77% late Tuesday. Prices and yields move in opposite directions.

The dollar was little changed versus the euro and the yen.

COMEX gold for October delivery rose $4.50 to $828.70 an ounce. 

Changes in oil prices moved the markets, according to Art Hogan, chief market strategist at Jefferies & Co. When oil prices were at their session lows, Wall Street was up and when oil prices were at their session highs, Wall Street hit its lows, according to Hogan. "The only thing that correlates is the oil prices today."

The Dow Jones industrial average (INDU) ended the day more than 0.2% higher, and the broader Standard & Poor's 500 (SPX) index gained 0.4%. The tech-heavy Nasdaq composite (COMP) fell about 0.2%.

One housing report showed home prices tumbled more than 15% in the second quarter and a government report showed the number of new homes sold in July was still more than 30% behind the same month last year.

Stocks did not react strongly to the negative economic reports because "things are bad, but they are not as bad as expected," said Doug Roberts, Chief Investment Strategist for ChannelCapitalResearch.com. "People are breathing a sigh of relief that these numbers are not as bad as they thought."

"The economic data that came out today was not the market mover that it could have been," said Hogan, because of very low market participation. "We already had the slowest day of the year last week but we might beat it this week."

The last week in August is a popular vacation week for financiers. With trading volume very light, each new piece of economic data moved the market only slightly, said Roberts. Stocks bounced around in positive and then in negative territory without ever moving solidly in either direction.

"You have a lot of guys at the beach operating from their BlackBerries," said Roberts. "Nobody really wants to stick their neck out too far," he said.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners 2 to 1 on a volume of 856 million shares. On the Nasdaq, advancers beat out decliners by 3 to 2, on a volume of 1.51 billion.

According to Roberts, the only news that could have really put a fire under the lethargic market would have been a massive change in oil prices. "Oil in the short term acts as a tax on the consumer," said Roberts. A sharp decline in energy prices means "a tax break - and that truly does give a material effect" to the consumer.

Financial news: The FDIC, one of the regulators of the nation's banking system, published its second quarter reading on the banking industry and the agency's so-called "problem bank" list grew to 117, up from 90 banks in the first quarter. The number of banks on the "problem list" has increased since Americans started having trouble paying their mortgage payments.

Housing news: The S&P/Case-Shiller report showed that home prices were a record 15.4% lower in the second quarter of 2008 than in the prior year. In addition, the report showed that residential housing prices in its 20-major-cities index fell 15.9% and in its 10-city index, prices fell 17%.

In another read on the housing market, the Office of Federal Housing Enterprise Oversight's (OFHEO) said that its seasonally adjusted purchase-only house price index was 1.4% lower in the second quarter this year than in the first quarter of 2008. Additionally, OFHEO's index was 4.8% lower in the second quarter of 2008 than the same quarter a year prior.

In another grim reading on the housing market, the Commerce Department said sales of new one-family houses were at a seasonally adjusted annual rate of 515,000 in July, up 2.4% from the June rate of 503,000, which had been revised lower. While the July reading ticked up from the prior month, the measure still stands 35.5% below the same month a year ago.

Consumer confidence: The Conference Board said that its reading on consumer confidence increased again in August, after making modest gains in July. The index stood at 56.9, which was higher than the reading of 53 that economists surveyed by Briefing.com had forecast.

Fed minutes: The government released the minutes from its meeting on Aug. 5 of the Federal Open Market Committee when the central bank decided to leave the key interest rate unchanged at 2%.

The Federal Reserve indicated concern over inflationary risks and the ongoing credit crisis in its minutes. "Although downside risks to growth remained, they appeared to have diminished somewhat, and the upside risks to inflation and inflation expectation increased," the minutes said. The minutes indicated that the Fed's next move would most likely be a rate hike. However, given the uncertainty of market conditions, the Fed would not say when the rate increase might be.

Oil and gas: Crude futures for October delivery rose $1.16 to settle at $116.27 a barrel in early trading on growing fears that Hurricane Gustav will interrupt oil supplies from the Gulf of Mexico. Retail gas prices have declined more than 10% since mid-July on the back of declining crude prices. The price of regular unleaded gasoline fell to $3.672 a gallon, according to motor advocacy group AAA's Web site.

Currencies: The greenback gained against the 15-nation euro as Germany, the largest economy in Europe, reported its consumer confidence reading stood at a 5-year low. In addition, rising inflation in the euro zone is further weakening the value of the euro, allowing the dollar to recover. (Full story.)

Bonds, gold: In the bond market, government Treasurys were mixed with the yield on the 10-year benchmark note at 3.78%. Bond prices and yields move in opposite directions.

COMEX gold for December delivery rose $2.40 to $828.10 an ounce.