NEW YORK (AP) - Stocks surged yesterday for the second time in three days as investors pounced on more evidence that the US economy might not be as sickly as some had feared.

Major stock indicators jumped about three percent, including the Dow Jones industrial average, which rose 257 points, its biggest one-day gain since March 23.

Strong earnings and an upbeat forecast from Intel Corp. and a more favourable take on the economy from the Federal Reserve pulled investors into the stock market. Stocks also rallied on Monday after an influential banking analyst raised her target on Goldman Sachs Group Inc.

The stock market had drifted lower over the past month as hopes faded that the economy would stage a quick recovery. Stocks soared in March and April as glimmers of hope from banks and economic indicators stoked hopes for a turnaround this year. But with little new evidence of improvement since then, investors began to worry last month that they had been too hasty in concluding that the economy was bottoming out.

The handful of reports this week from big companies are injecting the stalled rally with new energy because corporate profits are the ultimate driver of stock prices. The latest encouragement came from Intel, the giant computer chip maker whose much better results suggested that computer sales - and perhaps capital investment in general - is picking up faster than had been expected.

Investors also latched onto a report showing that industrial companies cut production far less in June than they had in previous months. The Federal Reserve said output at the nation's factories, mines and utilities slipped 0.4 percent last month after sliding 1.2 percent in May.

Traders found more good news when the Fed released minutes from its June meeting later yesterday saying it now expects the economy to contract at a slower pace than previously thought.

"What we're seeing is some confirmation that stabilisation is in fact upon us," said Matthew Kaufler, portfolio manager at Federated Clover Investment Advisors in Rochester, New York. "At least right now investors are willing to say it's not going to be as bad as feared."

The Dow jumped 256.72, or 3.1 percent, to 8,616.21, its third straight gain.

The Standard & Poor's 500 index rose 26.84, or three percent, to 932.68, while the technology-heavy Nasdaq composite index gained 63.17, or 3.5 percent, to 1,862.9.

Investors are showing again this week that economic data are important but corporate earnings and forecasts are even more important in galvanising buyers.

Wednesday's gain in the Dow was the best percentage climb since April 9, when the blue chips jumped 3.1 percent as Wells Fargo & Co.'s early profit report topped expectations. For the S&P 500 index, the day's jump was the biggest since a three percent rally on May 18 when a better-than-expected profit report from Lowe's Cos., the home-improvement chain, helped boost sentiment.

Stocks also surged overseas following Intel's report. Britain's FTSE 100 jumped 2.6 percent, Germany's DAX index rose 3.1 percent, and France's CAC-40 gained 2.9 percent. Hong Kong's Hang Seng index gained 2.1 percent.

A report showing higher than expected consumer price inflation in June did little to affect stock prices but it did send bond prices lower for a third straight day.

The Labor Department's Consumer Price Index rose 0.7 percent last month as gasoline prices surged. It was the fastest increase in 11 months and slightly worse than economists' projections of 0.6 percent. The bond market is highly sensitive to signs of inflation, which erodes the value of a bond's fixed returns over time.

The renewed surge in stock prices also robbed Treasurys of some of their safe-haven appeal as investors became more willing to take on risk. Bonds also fell on Tuesday after a report showing sharper-than-expected wholesale price inflation in June.

The 10-year Treasury note, a widely used benchmark for mortgages and other loans, tumbled more than a point, pushing its yield up to 3.61 percent from 3.47 percent late on Tuesday.

Intel's upbeat report followed strong earnings earlier on Tuesday from Goldman Sachs Group Inc. Goldman kicked off earnings in the banking industry by easily topping analysts' earnings predictions. The Wall Street banking giant said it earned $2.72 billion, after paying preferred dividends, only two quarters after posting a steep loss during the peak of the credit crisis.