By Kate Gibson and Barbara Kollmeyer, MarketWatch

NEW YORK (MarketWatch) -- U.S. stocks rose sharply Tuesday, lifting the Dow Jones Industrial Average to its loftiest spot ever, after a report illustrating continuing improvement in the service sector.

The more than century-old blue-chip index rose above the 14,164.53 record finish hit on Oct. 9, 2007, ahead of the global financial meltdown.

The market's four-year climb off the 2009 lows that followed has Wall Street bidding farewell to losses that came with the financial crisis, as monetary stimulus from the Federal Reserve and corporate-profit expansion supported Wall Street's recovery.

"The good news is the market has put in a new high, and we're actually at a better place than the last time we were at this level," said Lazard Capital Markets strategist Art Hogan of October 2007.

The Dow industrials fell 34% in 2008 as the housing bubble burst and the federal government moved to rescue the U.S. banking system.

On Tuesday, the Dow industrials (DJI) were up 146.38 points, or 1%, at 14,274.20, after rising to 14,286.37, easily topping its all-time intraday high of 14,198.10, set on October 11, 2007. See: IBM led gains in Dow's return to record territory.

See commentary: What's the big deal about the 2007 highs?

The S&P 500 index (SPX) rose 16.34 points, or 1.1%, to 1,541.54, with technology leading gains among its 10 major industry groups.

Shares of Qualcomm Inc. (QCOM) rose 1.8% after the computer-chip maker raised its dividend by 40% and created a $5 billion share-buyback program.

The Nasdaq Composite (RIXF) climbed 38.91 points, or 1.2%, to 3,220.91. See: Apple's not in the Dow, thank goodness.

For every stock that fell, almost six gained on the New York Stock Exchange, where composite volume surpassed 1.3 billion as of 11:30 a.m. Eastern.

Equities extended their rally after the Institute for Supply Management released its index of nonmanufacturing activity, which climbed to 56% in February from 55.2% the month before. See: Index of business conditions jumps to highest level in one year.

"It's a very solid reading that usually doesn't get much attention," said Hogan .

American Apparel Inc. (APP) rallied 15% after the retailer projected 2012 sales that beat estimates; J.C. Penney Co. (JCP) shares fell 9.3% after a large shareholder sold a portion of its holdings.

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