Internet group Yahoo reported profits ahead of analysts expectations and, perhaps more importantly, signalled that the slump in advertising revenues could be turning the corner.

At the same time, US data for last week showed unemployment had fallen to its lowest levels in two months, again contrary to expectations.

Despite the good news, analysts remained cautious and warned that there were still underlying concerns over the economy and possible attack on Iraq.

Although the economics are better, there's fear and trembling

Charles Pradilla, SG Cowen Securities

Welcome news

Yahoo shares jumped over 20% after it told investors that revenues for the last three months were up 50% on last year, as more people began paying for its online services.

"We find ourselves stronger, smarter and well prepared to take advantage of the opportunities ahead of us," said chief executive Terry Semel.

The Nasdaq index of leading tech stocks closed over 4% higher at 1,162, as investors took heart from the good news.

"Yahoo came out with better numbers and the fact that tech is starting to outperform is giving people a ray of hope," said David Mermott at Morgan Stanley.

Shorter job queues

Figures from the US Labor department also showed unemployment was down by 40,000 to 384,000, the largest weekly fall since August.

The positive news helped push the Dow Jones index up 3% to close at 7,529.

However, analyst warned against reading too much into yet another one-day rally.

Ongoing concerns over poor corporate earnings and the growing threat of a US-led attack on Iraq are still very much in the minds of investors.

"Although the economics are better, there's fear and trembling," said Charles Pradilla, chief investment strategist at S.G Cowen Securities.