Dow soars 200 on signs of DC budget progress

JeeYeon Park CNBC

Richard Drew / AP

Are things looking up? Stocks jumped after the opening bell on rising optimism that there will be a deal to end the government shutdown and extend the debt ceiling.

Stocks extended sharp gains across the board Thursday, with the Dow spiking up more than 200 points, as investors cheered signs of progress in resolving the political stalemate in Washington.

(Read more: Government standoff shakes trust in US debt)

House Republicans huddled behind closed doors on Thursday to consider a short-term extension of the nationís debt limit in hopes of jump-starting fiscal talks with President Barack Obama.

As a GOP negotiating team prepares to meet with Obama at the White House later this afternoon, the GOP was expected to mull an option in which they would vote to extend the nationís borrowing authority, without conditions, for a short period of time.

The Dow Jones Industrial Average jumped more than 200 points. The S&P 500 and the Nasdaq also rallied sharply. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, tumbled below 18.

The dollar rose to a two-week high against a basket of major currencies. Treasury prices slipped, sending yields higher, as signs of progress in Washington buoyed risk appetite. The benchmark 10-year note rose 4.5 basis points to 2.709 percent.

Earlier, Treasury Secretary Jack Lew testified on the debt limit before the senate panel, saying the impasse in Washington was hurting the U.S. economy and urged Congress to raise a cap on government borrowing to keep the nation from defaulting on its debt.

On the economic front, weekly jobless claims increased six-month high last week, according to the Labor Department, but the underlying trend pointed to a steadily improving labor market. California accounted for half of the increase in claims as the state continued to deal with technical glitches from its computer upgrades. And another portion of the claims were from non-federal workers affected by the government shutdown.

(Read more: States most, least affected by government shutdown)

On Wednesday, President Barack Obama officially nominated Federal Reserve Vice Chair Janet Yellen to replace Ben Bernanke as the chairman of the central bank.

Yellen is widely perceived as dovish on monetary policy and investors expect her to take a gradual path towards a reduction in the Fed's monthly $85 billion asset purchases.