Stocks staged their biggest one-day rally of the year Wednesday, as traders worked to close their books on the first quarter, with the major indexes scoring their best point and percentage gains for 2005.

The Dow Jones industrial average jumped 135.23 points, or 1.3 percent, to 10,540.93.

All but one of the 30 Dow industrials posted gains. The single loser was beleaguered insurance giant American International Group.

Carl Birkelbach, a Chicago-based investment adviser, said the mood in the stock market simply became too negative.

Before Wednesday's rally the Dow had slumped nearly 5 percent from its last peak of 10,940 on March 4.

"Stocks are undervalued," Birkelbach said. The ability of the Dow to hold above its 2005 low of 10,368 on Jan. 24 helped set the stage for Wednesday's move, he said.

Analysts also cited better-than-expected data on corporate profitability in the government's final report on fourth-quarter growth in the nation's gross domestic product.

Economist John Lonski of Moody's Investors Service said Wednesday's upbeat profit data reminded him of 1994, when worries over higher interest rates obscured a robust profit picture.

Wednesday's "jump by share prices suggested that rationality might again be gaining on emotions," Lonski wrote in a report on the day's economic data.

"Fourth-quarter 2004's bigger-than-expected widening of profit margins enhances the already favorable prospects for capital spending and employment," he wrote.

Analysts said another factor in Wednesday's rally may have been a delayed reaction to the $10.8 billion buyout bid by seven private equity firms for SunGard Data Systems, a provider of technology services to financial institutions.

The unusual joint buyout proposal, disclosed earlier this week, boosts optimism regarding a more aggressive merger-and-acquisition market this year.

Peoria-based construction equipment-maker Caterpillar, whose shares came under pressure earlier this week from negative analyst comments, helped lead the Dow higher.

Caterpillar added $1.68, or 12.41 Dow points, to $91.48.

General Motors, the worst of the Dow performers this year, had a good day. Shares rose 89 cents, or 3 percent, to $29.50.

The Standard & Poor's 500 index climbed 16.05, or 1.4 percent, to 1181.41, led by rallies in General Electric, Exxon Mobil and Pfizer.

The Nasdaq composite index surged 31.79, or 1.6 percent, to 2005.67. Among the Nasdaq 100 stocks, wireless communications equipment developer Qualcomm, online auction service eBay and Apple Computer were among the big gainers.

The Russell 2000 index of small-company stocks rose 10.27, or 1.7 percent, to 614.90.

New York Stock Exchange trading volume totaled 1.67 billion shares. Winners outnumbered losers by more than a 3-1 ratio.

Nasdaq trading volume totaled 1.72 billion shares as winners topped losers by a more than 2-1 ratio.