NEW YORK (AP) -- A surge in banks and other financial stocks that stand to benefit from higher interest rates pushed indexes to the edge of record highs Thursday. The dollar rose sharply against other currencies and the price of gold sank on expectations that the Federal Reserve will follow up Wednesday's rate increase with several more next year.
The Standard & Poor's 500 index rose 8.75 points, or 0.4 percent, to 2,262.03. It made up about half its loss from the prior day, which was its worst in two months.
The Dow Jones industrial average rose 59.71 points, or 0.3 percent, to 19,852.24. The Nasdaq composite rose 20.18 points, or 0.4 percent, to 5,456.85. All three indexes are within half a percent of their record highs.
"I think the market is just going through a period of rational exuberance," says Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management. "The prospect for faster economic growth and the normalization of interest rates --- these aren't bad things for the stock market."
The Federal Reserve raised short-term interest rates Wednesday by a quarter of a percentage point on the back of a strengthening economy. It was only the second rate increase in a decade, and the Fed indicated three more may be on the way in 2017.
That helped goose the dollar's value, which has been climbing against other currencies for the past couple years. The ICE U.S. Dollar index, which tracks the value of the dollar against the euro, Japanese yen and four other currencies, rose to its highest level since 2002.
Higher rates can also help banks reap bigger profits from making loans, and financial stocks jumped to the biggest gain of the 11 sectors that make up the S&P 500 index, 1 percent.
Bank of America rose 49 cents, or 2.2 percent, to $23.16, and Zions Bancorp. gained 84 cents, or 2 percent, to $43.04.
Stocks that pay big dividends lagged behind the rest of the market on fears that higher interest rates will push income investors away from them and back into bonds. Real-estate stocks in the S&P 500 fell 0.7 percent.
The yield on the 10-year Treasury note rose to 2.60 percent from 2.57 percent late Wednesday and reached its highest level in more than two years. The two-year Treasury yield held steady at 1.27 percent.
Higher yields mean newly issued bonds pay higher interest, but they also pull down prices of existing bonds sitting in investors' portfolios and bond funds.
Roughly four stocks rose for every three that fell on the New York Stock Exchange, and nine of the 11 sectors that make up the S&P 500 index rose.
Eli Lilly was one of the top-performing stocks in the index after rising $3.70, or 5.5 percent, to $71.37. The drugmaker gave a stronger-than-expected profit forecast for next year.
Pier 1 Imports surged $2.09, or 32.3 percent, to $8.57 after reporting stronger-than-expected earnings for the latest quarter and raised its forecast for full-year results.
The worst-performing stock in the S&P 500 was Yahoo, which fell $2.50, or 6.1 percent, to $38.41 after disclosing a breach that affected more than a billion user accounts, the largest such attack in history.
Gold dropped to its lowest price in 10 months. Higher interest rates often hurt the price of gold, which investors tend to flock to when they're worried about the prospect of higher inflation and too-low interest rates. Gold fell $33.90, or 2.9 percent, to settle at $1,129.80 per ounce.
Silver fell $1.26 to settle at $15.96 an ounce, and copper dipped by less than a penny to $2.60 per pound.
Benchmark U.S. crude slipped 14 cents to settle at $50.90 a barrel on the New York Mercantile Exchange. Brent crude, the international standard, rose 12 cents to $54.02 a barrel in London. Natural gas fell 10.6 cents to $3.434 per 1,000 cubic feet, and wholesale gasoline rose nearly a penny to $1.54 per gallon. Heating oil was little changed at $1.64 a gallon.
In European stock markets, Germany's DAX rose 1.1 percent, France's CAC 40 gained 1 percent and Britain's FTSE 100 rose 0.7 percent. In Asia, Japan's Nikkei 225 index gained 0.1 percent, Hong Kong's Hang Seng fell 1.8 percent and South Korea's Kospi was virtually flat.
The dollar rose to 117.93 Japanese yen from 116.37 late Wednesday, following up on a 1 percent jump. The euro fell to $1.0424 from $1.0557, and the British pound fell to $1.2436 from $1.2596.