Dow jumps 204, tops 10,000

Updated: 7:45 p.m. ET

Stocks jumped this afternoon, and the Dow Jones industrials ($INDU) closed above 10,000 for the first time since Oct. 22.

The rally was prompted by better-than-expected reports on new jobless claims and productivity and decent reports from retailers on October sales. As important were bullish comments about the economy from Cisco Systems' (CSCO) CEO John Chambers.

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The Dow closed up nearly 204 points, or 2.1%, to 10,006. The Standard & Poor's 500 Index ($INX) was up 20 points, or 1.9%, to 1,067. The Nasdaq Composite Index ($COMPX) was up 50 points, or 2.4%, to 2,105.

The point gains for the Dow and the Nasdaq were their largest since July 15. The S&P 500's gain was its largest since July 23.

The Nasdaq-100 Index ($NDX.X), which tracks the largest Nasdaq stocks, jumped 40 points, or 2.4%, to 1,721. Cisco, up 2.8% to $23.93, added 1.4 points to the Nasdaq. Apple (AAPL), up 1.7% to $194.03, added 4.5 points to the Index.

Futures trading suggests a flat open on Friday, but the Labor Department will report on unemployment and payroll employment before the open.

The jobless-claims report gave hope that U.S. unemployment is near a peak. But it is possible that the unemployment rate will hit 10% for the first time since the early 1980s. The consensus estimate is 9.9%, up from 9.8% in September.

The Labor Department this morning said initial jobless claims fell 20,000 to 512,000 last week -- the lowest level since January -- and a report that showed U.S. productivity rose at the fastest pace in six years in the third quarter.  

After today's close, coffee shop giant Starbucks (SBUX) added to the cheer by beating Street estimates for fiscal-fourth-quarter earnings and guiding higher for earnings in fiscal 2010.

Shares, which rose 2.6% to $19.70 in regular trading, added an additional 3.7% to $20.43 after hours. A close above $20 on Friday would the first for Starbucks shares since Oct. 26.

With today's close, Starbucks is up 108.3%, 14th best among Nasdaq-100 stocks.

Crude oil settled down 78 cents to $79.62 a barrel. Gold closed at $1,089.30 an ounce after hitting a record high of $1,097.72 on Wednesday.

All 30 Dow stocks were higher, led by American Express (AXP), up 5% to $37.74, and JPMorgan Chase (JPM), up 3.9% to $43.87. In addition, 463 S&P 500 stocks were higher, along with 95 Nasdaq-100 stocks, led by Wynn Resorts (WYNN), up 8.3% to $59.84.

Both the European Central Bank and the Bank of England kept their key lending rates on hold this morning. The Federal Reserve did the same on Wednesday.

Continuing claims drop

Initial jobless claims have been above 500,000 for 51 weeks in a row, but claims have declined for the past nine weeks. Economists had expected initial claims to have fallen to 520,000 from 532,000, revised from 530,000, in the previous week.

Continuing claims fell by 68,000 to a seasonally adjusted 5.75 million in the week ending Oct. 24, the lowest since March. On Wednesday, the U.S. Senate approved a bill to extend jobless benefits for thousands of unemployed workers.

"This report suggests that the peak for the unemployment rate may be closer than commonly thought," John Lonski, chief economist at Moody's Investors Service, told CNNMoney.com.

Productivity jumps as unit labor costs fall

U.S. companies managed to squeeze more output from their employees, according to the Labor Department's productivity report. Productivity surged at a 9.5% annual rate in the third quarter.

The productivity report also showed that unit labor costs, a key measure of inflation, dropped at a 5.2% annual rate in the quarter.

Productivity is output divided by hours worked. Output rose 4% annualized, while hours worked plunged 5%. Real hourly compensation increased at a 0.2% annual rate.

The productivity gains are good for corporate profits, MKM chief economist Michael Darda wrote in a note to clients.

But, he noted, the gains are not sustainable. "At some point, hours worked and payrolls will have to rise in order to meet stepped-up production schedules."

Consumers did some shopping in October

A cool October helped retailers, as many posted better-than-expected sales at stores open at least one year.

Costco (COST) posted a 5% gain in sales, better than the 4.7% increase analysts had expected. TJX Companies (TJX) saw sales rise 10%, and Gap's (GPS) sales were up 4%, topping the estimate of a 1.6% increase.

Overall same-store sales should rise 2% in October, according to Retail Metricks, which would be the largest gain since June 2008.

Elizabeth Strott contributed to this report.