NEW YORK (CNNfn) - Wall Street's two-month rally refused to die Thursday as the Nasdaq composite index rose for the seventh time in eight sessions.
The Dow Jones industrial average hovered near its highest levels in 16 months, lifted by Microsoft and IBM, as investors flocked to some of the year's best performing stocks.
A power shift in Washington, where Republicans lost control of the Senate, drew much of the session's focus, although the policy effects remain unclear.
The day's economic data, meanwhile, showed surprising weakness, hours before Federal Reserve Chairman Alan Greenspan speaks to economists in New York.
But ahead of that, investors showed continued faith that, with the Fed slashing interest rates, not owning stocks may be riskier than owning them.
"What we are looking for is interest rate cuts to be beneficial to the market," Chris Wolfe, equity market strategist at JP Morgan Private Bank, told CNNfn's The Money Gang.
The Nasdaq composite index rose 38.54 points, or 1.7 percent, to 2,282.02. Before falling Wednesday, the Nasdaq rose six straight sessions, its best winning streak in more than a year.
The Dow Jones industrial average rose 16.91 points, or 0.2 percent, to 11,122.42 and remains only 215 points below it's 16-month high hit Monday.
The S&P 500 rose 4.12, or 0.3 percent, to 1,293.17
More stocks rose than fell. Advancing issues on the New York Stock Exchange topped declining ones 1,585 to 1,463 on trading volume of 1 billion shares. Nasdaq winners beat losers 2,132 to 1,672 as 1.8 billion shares changed hands.
The dollar finished nearly flat against the euro and yen. Treasury securities declined.
Sluggish session
In a news conference from his home state, Sen. James Jeffords of Vermont announced his departure from the GOP, giving Democrats control of the Senate. "Increasingly, I find myself in disagreement with my party," Jeffords said.
The policy implications of the switch are uncertain. But Wall Street generally has favored the Republican agenda of larger tax cuts and fewer regulations on the drug, tobacco and oil business.
Drug stocks were among the biggest losers. Merck (MRK: down $1.50 to $72.50, Research, Estimates), Johnson & Johnson (JNJ: down $0.28 to $97.45, Research, Estimates) and Pfizer (PFE: down $0.63 to $42.92, Research, Estimates) all fell.
Still, divided legislative and executive branches also could cause the kind of political logjam that sometimes lifts stocks
"It just means gridlock," Art Cashin, director of floor trading at UBS PaineWebber, told CNNfn's The Money Gang. "Whenever our beloved elected leaders are handcuffed, the markets tend to do all right."
One of the best periods for stocks, the late 1990s, came with Democrat Bill Clinton in the White House and Republicans controlling Congress.
Jeffrey Benton, NYSE floor trader for LaBranche & Co., talked with CNNfn's Market Call about the power shift. (307K WAV) (307K AIFF).
Benton said he expects light volume through Friday, ahead of a long weekend. Monday, Memorial Day, is a market holiday.
The day's gainers included Microsoft (MSFT: up $2.02 to $71.72, Research, Estimates), up 65 percent this year, and IBM (IBM: up $2.20 to $119.60, Research, Estimates) , up 40 percent this year.
The session's actively traded winners included Citigroup (C: up $0.56 to $52.57, Research, Estimates), Veritas Software (VRTS: up $3.75 to $77.70, Research, Estimates) and Charter Communications (CHTR: up $1.00 to $21.92, Research, Estimates), the cable operator.
With Thursday's gains, the Nasdaq is up 39 percent from its early April low.
"The only thing hotter than the Nasdaq has been Barry Bonds," John Skeen, global director of Banc of America Securities, told CNNfn's Street Sweep, referring to Major League Baseball's leading home run hitter.
The Dow industrials are up 19 percent from their late March low. Still, several companies disappointed investors Thursday.
Barnes & Noble (BKS: down $0.97 to $32.65, Research, Estimates), the bookseller, said losses in the latest quarter came to $11.5 million, wider than expected.
Sawtek (SAWS: down $4.86 to $23.39, Research, Estimates) warned that quarterly results will fall below estimates because of a continued slump in demand for wireless communications.
Greenspan faces quiz
On Thursday evening, economists have the unusual chance to ask Fed Chairman Greenspan questions, a privilege usually reserved for Congress. He speaks before the Economic Club of New York.
Greenspan famously spooked the market in December 1996 at a similar economists' gathering when he wondered whether rising stocks signaled "irrational exuberance."
The Dow industrials, which hovered around 6,300 at the time, have gained about 75 percent since then.
Among numbers Greenspan will be perusing, data from the housing and jobs market showed weakness. Sales of new homes fell 9.5 percent last month to an annual rate of 894,000, the government said, much slower than Wall Street forecasts.
The number of Americans filing for first-time jobless benefits rose by 15,000 to 407,000 last week, surpassing expectations. The figures point to a weakening job market as companies trim payrolls to save money.
Friday brings a fresh round of economic data, including the release of durable goods orders, existing home sales numbers and economic growth figures for the first three months of the year.
Still, the markets have recently been able to look beyond economic and corporate weakness to a time when the Federal Reserve's five interest rate cuts this year will lift the economy.
The Dow industrials remain only 5 percent below their record high. But tech stocks have lagged and the Nasdaq still stands 55 percent below last year's peak. 
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