Stocks advanced more than 2 percent on Thursday after China denied a report that it was reviewing its holdings in euro-zone sovereign bonds due to the region's debt crisis.

The People's Bank of China said a Financial Times report that Beijing was concerned about its euro-zone exposure was groundless. The report had cut short a rally in the previous session.

Reports from the front suggested that investors might become frightened that China could do something drastic, said Douglas Peta, an independent market strategist in New York.

Getting some assurance that Chinese sales of European sovereign debt isn't imminent is making everyone feel better.

Microsoft Corp also lifted markets, rising 4.7 percent to $26.18 after FBR Capital Markets upgraded the Dow component to outperform, citing improving fundamentals and recent share underperformance.

The Dow Jones industrial average <.DJI> was up 214.02 points, or 2.15 percent, at 10,188.47. The Standard & Poor's 500 Index <.SPX> was up 25.31 points, or 2.37 percent, at 1,093.26. The Nasdaq Composite Index <.IXIC> was up 59.82 points, or 2.72 percent, at 2,255.70.

The S&P 500 was trading in late morning above the 1,090 level it has failed to breach in the last week, which is seen as technical resistance.

Short-term, that's probably a level that traders are sitting on, trying to play that from the short side, but when it fails, it's going to fail spectacularly, said Richard Ross, global technical strategist at Auerbach Grayson in New York.

But he said a more significant indicator would be a close above the 200-day moving average, now right above 1,104.

The Dow jumped back above 10,000 and the CBOE Volatility Index <.VIX> fell 13 percent to levels seen in the middle of May before investors got rattled over the fragility of the European banking system.

Data showing the U.S. economy grew at a slower pace than expected in the first quarter was not enough to keep investors from grabbing bargains after major indexes dropped more than 10 percent over the past month.

In other data released on Thursday, new applications for state jobless benefits dropped to 460,000 last week from 474,000 in the previous week, the Labor Department said, pointing to a gradual labor market recovery.

No one wants to see GDP revised lower, and the labor market isn't going to improve in a day, but it is encouraging to see concrete signs of improvement, Peta said.

Energy shares, among the casualties in a recent sell-off, rose sharply, with the S&P energy index <.GSPE> up 3 percent, the top percentage gainer among S&P sectors.

July crude futures gained 3.7 percent, or $2.62, to $74.13 a barrel, tracking equities. In sync with the spike in oil prices, Chevron Corp rose 2.8 percent to $73.58. Chevron gave the Dow its top boost, while Microsoft was the percentage leader and the Nasdaq's most actively traded stock.

Fellow Dow component Pfizer Inc rose 1.5 percent to $15.33 after the drugmaker said it would stop recruiting patients for a clinical trial for its heart drug Inspra because the study reached its main efficacy goal early.

In earnings news, both Costco Wholesale Corp and Tiffany & Co reported quarterly profits that beat expectations while Tiffany also raised its outlook. Costco advanced 4.7 percent to $58.60 while Tiffany shot up 5.6 percent to $46.05.

On the downside, Monsanto Co slumped 7.6 percent to $48.67 after it cut its 2010 profit outlook.

(Reporting by Ryan Vlastelica; Editing by Jan Paschal)

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