* McDonald's up as China demand recovers
* Dow Chemicals rises, boosting materials sector
* Indexes up: Dow 1.9 pct, S&P 1.7 pct, Nasdaq 1.7 pct (Updates to close)
By Caroline Valetkevitch
Oct 22 (Reuters) - The S&P 500 closed at its highest in two months on Thursday as stronger-than-expected earnings from several top companies, including McDonald's, relieved investors' concerns about the profit outlook.
Adding to the day's optimism, ECB President Mario Draghi said the bank could extend its stimulus program beyond 2016 to boost euro zone growth and boost inflation closer to 2 percent.
McDonald's shares jumped 8.1 percent to $110.87, giving the Dow its biggest boost, after its quarterly results beat estimates as demand recovered in China. EBay rose 13.9 percent to $27.58 after it reported better-than-expected results late on Wednesday.
Dow Chemical rose 5.1 percent to $49.92 after its results, while the S&P materials index jumped 2.8 percent and led the S&P sector gains along with the industrials , also up 2.8 percent.
In another sign of diminished concerns, the CBOE Volatility Index - the market's favored barometer of volatility - closed at a 2-month low.
"Corporate earnings certainly helped because the season started off sort of sluggish and you had some nice surprises today," said Eric Kuby, chief investment officer at North Star Investment Management Corp. in Chicago.
The Dow Jones industrial average rose 320.55 points, or 1.87 percent, to 17,489.16, the S&P 500 gained 33.57 points, or 1.66 percent, to 2,052.51 and the Nasdaq Composite added 79.93 points, or 1.65 percent, to 4,920.05.
Data on Thursday showed new claims for U.S. unemployment benefits rose by 3,000 to 259,000 last week, below the 265,000 expected, while existing home sales increased more than expected to an annual rate of 5.55 million units in September.
The Federal Reserve, which kept U.S. interest rates unchanged near zero in September, has said it will wait for signs of global economic resilience before pulling the trigger on its first rate hike in nearly a decade.
Nine of the 10 major S&P sectors were higher. Only healthcare appeared immune to the upbeat mood, declining about 0.5 percent.
Advancing issues outnumbered declining ones on the NYSE by 2,312 to 791, for a 2.92-to-1 ratio on the upside; on the Nasdaq, 1,777 issues rose and 1,001 fell for a 1.78-to-1 ratio favoring advancers.
The S&P 500 posted 41 new 52-week highs and 9 new lows; the Nasdaq recorded 82 new highs and 91 new lows. (Editing by James Dalgleish and Dan Grebler)