* A late surge of buying interest in transportation, medical and retailing stocks helped break the market's summer lull, sending the Dow Jones industrial average up 24.05 points to 3,290.31, for its best daily showing in more than a month.
* The dollar recovered slightly against most major currencies in quiet trading as investors took profits ahead of the government's monthly unemployment report.
* Treasury bond prices also rose as investors received more news on the sluggish economy and waited for Friday's unemployment figures.
The stock market was also buoyed by the dollar's slight recovery and further gains in bond prices.
Chart-tracking traders noted that the stock market tends to rise a few days before the Labor Day weekend.
In the broader market, advancing issues outnumbered declines by about 5 to 3 on the New York Stock Exchange. Big Board volume increased to 187.48 million shares, up from 174.43 million on Tuesday.
While there have been few economic numbers recently to suggest a strong rebound in the economy, traders said the stock market's action suggested that investors may be anticipating a resumption of growth.
"There's the feeling the economy may be bottoming out," said Paul Hennessey, a vice president in trading at Boston Co. The August employment report, due Friday, may set the tone for investors' perceptions. So far, "it still feels as if momentum is slowing," said Ron Hill, investment strategist at Brown Bros. Harriman.
After a surge led by airline stocks Tuesday, the Dow Jones transportation index posted another steep rise of nearly 30 points. Gains in that index usually bode well for the market.
"Transports are cyclical," noted David Bostian of Herzog Heine & Geduld. "In general, there's the perception that maybe the economy will build strength."
The Dow Jones 30-stock index traded in a 10-point range through early afternoon, then began to tick up steadily until the closing bell.
Bostian said some buyers may have been encouraged because "the market is not buckling." In addition, the steadier dollar could give the Federal Reserve room to lower interest rates again, he said.
Among the market highlights:
* Retailers will report monthly sales figures today, prompting gains in retail stocks in anticipation of strong sales. The Limited rose 1 1/4 to 23 3/4, Merry Go Round gained 1 to 13, and Gap was up 1 1/2 to 35 5/8.
* In the medical sector, Critical Care rose 2 3/8 to 38, and Medical Care was up 2 7/8 to 52 1/4.
* Oxford Health Plans added 1 1/2 to 30 3/4. It said enrollment in its health benefit plans rose past the 100,000 mark on Aug. 1 and that the pace of enrollment growth can be sustained.
* CBS Inc. rose 2 7/8 to 200. Smith Barney upgraded its opinion to buy from hold on the company.
* U.S. Surgical lost 2 1/2 to 73 1/2 after Johnson & Johnson, parent of U.S. Surgical rival Ethicon, said it will announce a significant development in endoscopic or minimally invasive surgery.
* Within the transportation group, AMR rose 2 1/4 to 59 5/8, British Airways gained 2 1/4 to 47 1/2, American President added 1 1/2 to 42 3/4, and Yellow Freight gained 1 to 26 1/2.
In overseas trading, Frankfurt's 30-share DAX average closed 12.03 points lower to 1,506.67 after dipping below 1,500 in early trading.
Stocks also ended lower in Tokyo, with the 225-share Nikkei average closing down 152.34 points to 17,587.72.
London closed higher, with the Financial Times 100-share average ending 14.6 points up at 2,313.0.
Early Wednesday, the dollar fell again to all-time lows against the German mark, at one point reaching 1.386, down from Tuesday's record-low close of 1.390. But the U.S. currency soon recovered to close in New York at 1.394 marks.
But the dollar traded in narrow ranges, and the slight rise was not an indication the U.S. currency has ended its period of decline, said Mike Faust, senior currency strategist with MMS International in New York.
"The underlying position of the dollar is still one of weakness," Faust said.
Investors were selling the mark and buying the greenback in a move to milk profits ahead of Friday's scheduled release of August jobless figures, said Kevin Lawrie, the Bank of Boston's director of foreign exchange.
There is uncertainty among economists about what those numbers will show, Lawrie said. If the report brings more bad news for the economy, however, the Federal Reserve could ease interest rates again.
In that case, the dollar could decline even further because U.S. interest rates are already low compared to those in Germany, making mark denominated investments more attractive and thereby decreasing need for the U.S. currency.
In New York, the dollar closed at 123.10 yen, up from 122.70 Tuesday.
The price of the Treasury's main 30-year bond was up 3/32 point, or 94 cents per $1,000 in face amount. Its yield, which falls when prices rise, was 7.37%, down from 7.38% late Tuesday.