NEW YORK: US stocks rallied for a second straight day on Wednesday after reports on robust online holiday spending and a surprise jump in mortgage applications offset a batch of dismal economic data.

The Dow Jones Industrial Average powered 172.60 points higher (2.05 percent) to close at 8,591.69 and the tech-heavy Nasdaq composite climbed 42.58 points (2.94 percent) to 1,492.38.

The broader Standard & Poor's 500 advanced 21.93 points (2.58 percent) to finish at 870.74.

Stocks opened sharply lower and endured roller-coaster action before riding upward momentum at the end of the session.

"The bigger picture remains a psychological tug-of-war between hope that the recession will end six to nine months from now rather than several years," said Al Goldman, analyst at Wachovia Securities.

"This quandary will probably keep us in a very volatile market for several more months but the short-term trend still looks higher."

Investors cheered a report by digital research firm comScore showing a double-digit rise in online holiday spending over last weekend and sales up 15 percent on "Cyber Monday" sales to 846 million dollars, the second-highest day on record.

Online retailer Amazon jumped 9.76 percent to 45.21 dollars.

"The news helped offset data showing further weakness in the labour market," said Goldman.

The ADP National Employment Report showed the US private sector lost 250,000 jobs in November, the largest decline in six years, in a further indication of a tightening labour market amid recession.

The report "has cast a worrisome shadow over the more comprehensive employment report that comes out Friday," said Patrick O'Hare, analyst at Briefing.com.

Most analysts expect the Labour Department to announce 325,000 job losses in November on Friday.

The Institute for Supply Management (ISM) reported the service sector contracted for the second consecutive month in November, results that show "the current recession intensified and spread across industries last month," said Peter Kretzmer at Bank of America.

The Federal Reserve, in its latest Beige Book, said US economic activity had "weakened" since prior report in October.

Financials rallied on a Mortgage Bankers Association report showing rising demand for mortgages in the moribund housing market.

The MBA said mortgage loan applications for the holiday-shortened week ending November 28 soared 112.1 percent from a week earlier as the average 30-year, fixed-rate mortgage fell a hefty 0.52 points to 5.47 percent.

The report was "a huge surprise," which could help the sector at the centre of the economic storm, said Gregory Drahuschak, analyst at Janney Montgomery Scott.

The strongest gainers were Citigroup, up 8.31 percent at 7.82, Bank of America (6.96 percent at 15.05) and JPMorgan Chase (6.03 percent at 30.25.

Canada-based Research In Motion, maker of the BlackBerry mobile communication device, leapt 4.39 percent to 38.96 dollars despite issuing a quarterly profit warning.

Constellation Energy climbed 5.92 percent to 12.89 after French state-controlled electricity giant EDF unveiled an unsolicited 4.5 billion dollar takeover offer for half of its nuclear activities. Constellation had
accepted a bid by MidAmerican Energy, controlled by US financier Warren Buffett.

Bonds closed at new record highs after volatile trade. The yield on the 10-year Treasury bond dropped to 2.676 percent from 2.693 percent on Tuesday and the yield on the 30-year bond dropped to 3.184 percent from 3.202 percent. Bond yields and prices move in opposite directions. - AFP/de