The creation of three times as many private-sector jobs as expected turned Wall Street's early losses into gains on Wednesday, extending a rally investors worried had come too far too fast.
Financial stocks led gains, helped by credit-card companies such as Capital One Finance Corp
The jump in private payrolls to nearly triple the forecast, comes two days ahead of the government's labor report. Economists boosted forecasts for Friday's payroll growth.
The economy is clearly accelerating, said Edward Hemmelgarn, president of Shaker Investments in Cleveland. It's difficult to make the case for the market to go down in the first six months of the year.
Trading volume has picked up sharply after the two-week holiday period, showing participation in the latest stage of the rally although many indicators are pointing to a market that may be reaching the top of its recent trading range.
The Dow Jones industrial average <.DJI> gained 31.71 points, or 0.27 percent, to 11,722.89. The Standard & Poor's 500 Index <.SPX> rose 6.36 points, or 0.50 percent, to 1,276.56. The Nasdaq Composite Index <.IXIC> added 20.95 points, or 0.78 percent, to 2,702.20.
U.S. private employers added 297,000 jobs in December, a report by the ADP Employer Services showed, which was nearly three times what economists forecast and the biggest jump on record for ADP, which has data going back to 2000.
Employment agency Monster World Wide Inc
The encouraging data also lifted housing stocks. The PHLX housing index <.HGX> rose 1.8 percent, with homebuilder DR Horton Inc
The S&P 500 ended 2010 up nearly 13 percent and recorded its best December since 1991, driven in part by encouraging economic data in the latter part of the year.
Technical indicators, such as the S&P 500 relative strength index, which measures higher and lower closing prices over a given period, suggest the market could be at the upper end of its short-term trading range.
The stronger data also helped put a floor under commodity prices that had weighed on the market earlier in the day. Industrial shares finished higher, with Caterpillar Inc
Shares in the materials sector, however, remained weak, including aluminum company Alcoa Inc
Following yesterday's decline in commodities, investors are treading lightly in that part of the market today, unsure if there is a further correction in store, said Michael Sheldon, chief market strategist at RDM Financial in Westport, Connecticut.
In other economic data, the Institute for Supply Management reported the vast U.S. services sector grew in December at its fastest pace in more than four years.
But the employment component of the report fell, differing with the ADP report's trend and making some investors cautious.
The government's jobs report on Friday is expected to show the economy created 175,000 non-farm jobs last month, according to a Reuters poll.
Among stock losers, Family Dollar Stores Inc
About 8.21 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, just below last year's estimated daily average of 8.47 billion.
Advancing stocks outnumbered declining ones on the NYSE by about 3 to 2, while on the Nasdaq, five stocks rose for every two that fell.
(Additional reporting by Caroline Valetkevitch; Editing by Kenneth Barry)