Stocks surged on the first day of trading in December as an upbeat report on private sector jobs added to evidence of a stronger U.S. economy and as China reported manufacturing activity rose to a seven-month high.
The Dow Jones Industrial Average rose about 200 points, a day after stocks ended the month lower.
All 30 Dow components rose led by Home Depot, United Technologies, and Caterpillar .
The S&P 500 and the Nasdaq also jumped higher. The CBOE Volatility Index, widely considered the best gauge of fear in the market, sank more than 10 percent to below 21.
The key S&P 500 sectors were all higher, led by industrials, energy and technology.
The Institute for Supply Management's manufacturing index was 56.6 in November, down slightly from an upwardly revised 56.9 reading in October. Construction spending rose 0.7 percent, more-than-expected.
The market surge was fueled by news the economy created 93,000 private-sector jobsin November, according to the latest report from ADP and Macroeconomic Advisors. The rise was the biggest since November 2007. Economists surveyed by Reuters expected the private sector to add 69,000 jobs.
But planned layoffs in November were 28 percent higher than in October, the biggest increase in eight months, global outplacement consultancy Challenger, Gray & Christmas reported Wednesday. The biggest number of layoffs were in the nonprofit sector.
A panel wrestling with how to cut the deficit and balance the U.S. budget proposed larger cuts in spending and more alternatives for revising the tax code than an initial plan. The revision is designed to attract more support from lawmakers on the panel.
In other news, the Fed has to disclose the names of banksthat borrowed from the central bank during the financial crisis today. Experts say the disclosures will be interesting, but not meaningful for investors.
General Motors rose after reporting sales rose 21 percent in November, much better than expected. The automaker, which resumed trading on the New York Stock Exchange lats month, expects its four brands to gain market share in 2010. Ford , Nissan and Toyota will report sales figures later.
In corporate news, Motorola shares rose after news its board approved a 1-for-7 reverse stock split.
American Express rose after news JPMorgan started covering the financial firm with an "overweight" rating and a price target of $50. The brokerage also began covering Discover Financial and Capital One with "neutral" ratings.
Oil prices pared gains, although remained higher, after the U.S. government showed a 1.1 million rise in crude inventories for the week before. Analysts had expected inventories to fall 900,000. Oil prices had been higher earlier due to expectations of stronger demand from China.
The energy sector remained strong, up more than 2 percent. Schlumberger and Halliburton rose as did oil giants Chevron , Exxon and Conoco Phillips .
Retail stocks were higher as investors took heart in reports of strong holiday sales. On so-called Cyber Monday, Americans spent $1 billion, the most ever spent online in one day, according to Research firm comScore.
Internet retailers Amazon.com rose, as did Bluefly ,Overstock.com and eBay .
Several retailers hit 52-week highs, including luxury retailers Tiffanyand Coach , as well as Limited Brands and Costco .
Google gained after Oppenheimer said the stock is a buy given market speculation the company will be acquiring online discounter Groupon,countering a viewthat the acquisition as too pricey, among other concerns. Oppenheimer said the Internet-search giant is "uniquely positioned to leverage Groupon's local salesforce: to sell Google advertising products. Separately, Groupon announced it bought Ludic Labs, which provides local marketing services.
Netflix , meanwhile, was down slightly after news the company struck a deal with FilmDistrict to stream first-run movies over the Internet.
And Kroger rose after Jefferies upgraded the stock to "buy" from "neutral," and boosted its price target to $27 a share from $23.
The dollar fell slightly against a basket of currencies, giving a lift to stocks which have been moving inversely to the dollar's direction for several months.
Also, a new report warned of tough times ahead for states. The National Governors Association and the National Association of State Budget Officers said states face "extremely tight fiscal conditions" as federal support winds down.
Meanwhile, Federal Reserve Chairman Ben Bernanke warned Tuesday that a long period of high unemployment could have severe social consequences.
U.S. nonfarm productivity rose at an annual rate of 2.3 percent in the third quarter, better than the 1.9 percent pace reported in November, the Labor Department said Wednesday. Productivity had contracted 1.8 percent in the second quarter.
Also on the economic front, higher mortgage rates led to a slowdown in mortgage applications last week. A seasonally adjusted index of mortgage application activity dropped 16.5 percent to 608.8 in the week ended Nov. 26, led by a 21.6 percent drop in refinancings, according to the Mortgage Bankers Association.
Later, the Energy Information Administration will release its reading of crude oil and gasoline inventories at 10:30 am.
The Federal Reserve's Beige Book, a region-by-region look at the nation's economy, will be out at 2 p.m.
Stocks got an early lift Wednesday after China reported better-than-expected manufacturing data. China's purchasing managers' index rose to a seven-month high of 55.2 in November from 54.7 in October, the China Federation of Logistics and Purchasing said.
European stocks were higher, rebounding from recent losses, with strong manufacturing data from the UK adding to the positive effect of China's economic data. Asian indexes closed higher.
The European debt crisis was still in focus after Standard & Poor's said it may downgrade Portugal's debt rating in 3 months. And a senior G20 source revealed to Reuters that G20 deputy finance ministers held a teleconference to discuss "the financial situation in Europe" Monday.
On Tap This Week:
WEDNESDAY: Auto sales, ISM manufacturing index, construction spending, oil inventories, Beige Book, Fed vice chair Yellen speaks
THURSDAY: ECB announcement, jobless claims, pending home sales, Philadelphia Fed Pres Plosser speaks, Fed Gov. Duke speaks, chain-store sales; Earnings from Toll Brothers, Del Monte and Kroger
FRIDAY: Employment situation, factory orders, ISM non-manufacturing index
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