The Nasdaq composite index was up 56.10, more than 3 percent, at 1,746.30, and the Dow Jones industrial average rose 188.76 points, more than 2 percent, to 9,263.90.
The Justice Department and a group of state attorneys general met to discuss the Microsoft case this week. The proposed deal would allow computer manufacturers to load non-Microsoft software on their machines and give software companies more access to the Windows code.
The news sent Microsoft's stock up $3.69, or more than 6 percent, to $61.84 as investors pondered what could turn out to be the completion of the dispute. But the end may not quite be in sight: Experts cautioned that this week's settlement discussions could collapse at any time, and the states are reportedly not entirely happy with the proposed deal.
In economic news, the monthly index of U.S factory activity slipped to 39.8 in October from 47 in September, according to the National Association of Purchasing Management. The last time it was that low--February 1991--the economy was in a recession. Economists were expecting the index to be about 44.3, according to a Reuters survey.
A reading under 50 indicates that manufacturing activity is contracting. The index has been under 50 for more than a year.
"The real risk is that the economic recovery gets pushed out until the second half of 2002," said Jeff Kleintop, chief investment strategist at PNC Advisors. "The enthusiasm that we will see a recovery is being tempered a bit by the thought that it keeps getting pushed out a month or two further given the continuing repercussions of the Sept. 11 attacks."
On the technology front, CNET News.com has learned that a $20 billion stimulus package in the works by Senate Democrats may include $1 billion for an information-technology fund.
In other news, Sun Microsystems continued to gain after remarks by CEO Scott McNealy that "short of a multibillion-dollar embezzlement, I think we are in pretty good shape to ride out, you know, a two- or three-year economic storm." The stock was up 69 cents to $10.84.
Charter Communications slid $1.64 to $12.50 after it reported that growth for the year would be slower than expected. The cable operator said Thursday that it expects revenue to grow 12.5 percent to 13.5 percent in 2001, down from an earlier forecast of 14 percent to 16 percent.
Among other heavily traded tech issues, Intel was up $1.52 to $25.94, Oracle rose 61 cents to $14.17, Cisco Systems was up 74 cents to $17.66, and EMC gained 71 cents to $13.03.
Amazon.com was off 3 cents to $6.95, and AOL Time Warner rose $1.54 to $32.64.
Staff and Reuters contributed to this report.