NEW YORK - Stocks surged Thursday to their highest levels in two months after banking giant Wells Fargo & Co. surprised the market with an early profit report that blew past analysts' expectations thanks to a strong pickup in its lending business.

The Dow Jones industrial average jumped nearly 250 points and major indexes logged their fifth straight week of gains. Markets are closed for today's Good Friday holiday.

Investors have been grasping at any sign of improvement in the crippled banking industry, and Wells Fargo's report Thursday that it expects first-quarter earnings of $3 billion provided an encouraging sign that a deep freeze in borrowing activity may finally be thawing. Wells Fargo said it benefited from its January acquisition of Wachovia and an increase in mortgage applications.

"The fact that Wells Fargo can have record profits despite the troubles facing the banking system tells you something," said Rick Campagna, chief investment officer at 300 North Capital in Pasadena, Calif. "It's very good news."

The Dow and the Standard & Poor's 500 index ended at their highest levels since Feb. 9 and the Nasdaq posted its highest finish of the year, giving it a gain of 4.8 percent for 2009.

The Dow rose 246.27, or 3.1 percent, on Thursday to 8,083.38. Broader stock indicators also put up big gains. The Standard & Poor's 500 index rose 31.40, or 3.8 percent, to 856.56. The Nasdaq composite index rose 61.88, or 3.9 percent, to 1,652.54.

5 straight weekly gains for Dow

For the week, the Dow rose 0.8 percent. The blue chips hadn't logged five straight weekly gains since October 2007, when the industrial average peaked out above 14,000.

The S&P 500 rose 1.7 percent for the week, while the Nasdaq added 1.9 percent.

Wells Fargo's announcement injected a decisively upbeat tone into the market after three days of choppy trading.

Bank shares had been sluggish this week following worrisome forecasts from key analysts about the bad loans they still carry on their balance sheets and other long-term woes. Major banks will begin reporting first-quarter results next week.

Wells Fargo jumped 31.7 percent Thursday and several other major banks also barreled higher, including Bank of America Corp., which added 35.3 percent. J.P. Morgan Chase & Co. rose 19.4 percent, and Citigroup Inc., up 12.6 percent.

San Francisco-based Wells Fargo, which received $25 billion in funds as part of the government's bank bailout plan, anticipates earnings after preferred dividends of about 55 cents per share. Revenue for the period ended March 31 is expected to climb 16 percent to $20 billion.

Analysts polled by Thomson Reuters had forecast profit of 23 cents per share on revenue of $19 billion. Analysts' estimates typically exclude one-time items.

Wells Fargo earned $2 billion in the first quarter last year.

'Seeing a lot of business'

The bank's chief financial officer, however, did caution that the economy hasn't necessarily recovered yet.

"It's premature to conclude the economy has turned," said Howard Atkins, Wells Fargo's CFO. "All I can tell you is we're seeing a lot of business."

Revenue at Wells Fargo, which has been one of the strongest banks during the ongoing credit crisis and recession, was bolstered by strong mortgage banking and capital markets business, Atkins said. In the first quarter, Wells Fargo received about $190 billion in mortgage applications, a 64 percent jump from the previous quarter. More than 40 percent of that volume came in March.

Most of that business was refinance applications, but about 25 percent came from customers looking to buy homes, Atkins said, noting the recent quarter's mortgage activity has been among the strongest quarters since the housing market began to tank in 2007.

The government has been implementing many new programs in an effort to cut interest rates, hoping to bolster the beleaguered housing market, and those programs have definitely helped, Atkins said.

"For sure the reduction in interest rates is having an impact on the wave of activity in the mortgage market," he said.

Wachovia helped

The company also credited its Wachovia acquisition, which was completed Jan. 1, for helping boost revenue. Atkins said Wachovia accounted for about 40 percent of revenue in the first quarter, and that business at Wachovia has steadily improved since Wells Fargo announced it would acquire the Charlotte, N.C.-based bank last fall.

Wells Fargo said charge-offs are expected to total $3.3 billion for the first quarter, compared with a combined $6.1 billion between Wells Fargo and Wachovia during the fourth quarter. Charge-offs are loans written off as not being repaid.

The bank is still facing loan losses as customers fall behind on repaying loans. It said its loan-loss provision will total about $4.6 billion for the first quarter, including adding $1.3 billion to its credit reserves. Wells Fargo now has $23 billion in reserves to cover future loan losses.

Wells Fargo will report full quarterly results on April 22.

The upbeat mood Thursday sent one measure of the market's unease fell to its lowest levels since the fall. The Chicago Board Options Exchange Volatility Index, or the VIX, ended Thursday at 36.53, its lowest level since Sept. 26. That signals investors are more confident they can predict the direction of stocks.

Ordinarily what's known as Wall Street's fear gauge might be in the 18 to 20 range but it hit 89.5 in October.

Associated Press writers Stephen Bernard and Michelle Chapman contributed to this report.