Stock prices maintained their rally in heavy early afternoon trading Thursday on optimism about the direction

of interest rates, driving the Dow Jones industrial average well above the 4,000 barrier.The Dow, which rose 9.08 points Wednesday, was up 42.39 points to 4015.44 at 1 p.m. EST. The key barometer first topped the psychologically important 4,000 mark around 10 a.m.

The New York Stock Exchange composite index was ahead 2.04 to 265.08, while Standard & Poor's 500-stock index was up 3.79 to 488.86 - slightly above its record closing high of 485.22 that was set Feb. 16.

Volume was about 228,940,000 shares, compared with 194,870,000 in the same period Wednesday.

Prices remained slightly higher on the American Stock Exchange and moderately higher on the Nasdaq Stock Market.

On Wednesday, Federal Reserve Chairman Alan Greenspan indicated the central bank may be finished raising interest rates.

His comments led analysts to hope that the Fed may have successfully engineered a soft landing for the economy, that is, moderate growth without undo inflation.

Greenspan told a House Banking subcommittee Thursday he stands ready to cut rates if the hoped-for budget deficit reduction under Congress hurts the economy.

"This is an interest-rate rally," said Trude Latimer, vice president and chief market strategist at Ferguson Andrews & Associates Inc. in Charlottesville, Va.

She said Thursday's jobless claims report "confirmed the softening of the economy. The rise in jobless claims is no longer an aberration. It's a developing trend."

On the NYSE trading floor, Motorola paced the Big Board actives, down 11/8 to 567/8. Telefonos de Mexico followed, off 1/8 to 295/8. Ford Motor was third, up 1/8 to 263/4.

Viacom Class B led the Amex actives, down 3/4 to 46.

Novell paced the Nasdaq actives, up 1/2 to 211/8.