The Dow Jones Industrial Average was up 106 points at 12,569. The S&P 500 was up 11 points at 1,429 and the Nasdaq Composite was up 33 points at 2,448.

"Seasonals are at play," said Stephen Sachs, head of trading at Rydex Investments. "After the strong market we had straight through the end of 2006, it was to be expected that'd we continue rallying in the first few weeks of the year."

Wal-Mart Stores was the biggest gainer among blue-chips, rising 4.2%. The nation's largest retailer forecast December same-store sales ahead of prior expectations.

Investors also cheered news that Home Depot's  embattled chief executive, Robert Nardelli, had resigned to be replaced by Vice Chairman Frank Blake.

The news sent the stock of the home improvement retailer up 3%. Home Depot came under fire earlier this year for the rich pay package awarded to Nardelli, which critics say is not in line with company performance.

Investors returned in force after a four-day break. In addition to New Year's day on Monday, the stock market was closed on Tuesday to mark a national day of remembrance for former President Gerald Ford, who died last week at the age of 93.

The strong buying momentum helped investors overlook two new reports showing weakness in the labor market.

The ADP employment report showed U.S. private-sector employment fell by 40,000 in December, the first decline in nearly four years. In addition, the Hudson employment index fell 2.6% in December from November for its lowest reading since Aug. 2005.

Both reports will likely lead economists to review their forecasts for the government estimate of December employment, due for release on Friday.

"I'm a little surprised that the market is not reacting more to this jobs data," said Rydex's Sachs. "But this is a clear signal that seasonals will remain in play for the first few weeks of the year."

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Strength in overseas markets also helped to lift sentiment.

S&P 500 futures rose 10.10 to 1,438.50 and Nasdaq 100 futures tacked on 14.00 to 1,789.00 on Tuesday.

The stock market will be closed Tuesday as the New York Stock Exchange, Nasdaq Stock Market and American Stock Exchange observe a day of mourning for former president Gerald Ford.

On Friday, the Dow Jones Industrials Average closed down 38 points, but rose more than 16% on the year. The S&P 500 gained nearly 14% and the Nasdaq Composite climbed 9.5%.

Wal-Mart said December same-store sales were expected to be up 1.6% over year-earlier levels, well above the company's previous estimate of a 1% gain.

The world's largest retailer's stock, a component of the Dow industrials, was up 1.2% in Germany.

In other markets seeing activity, February crude oil futures tacked on 25 cents to $61.30 a barrel in electronic trading, and February gold futures advanced $3.80 to $641.80 an ounce. The New York Mercantile Exchange will be closed.

The U.S. dollar was slightly weaker vs. its major counterparts. The euro was trading at $1.3279, up 0.6% from $1.3198 in late trading on Friday. Against the yen, the buck was at 118.79, which was 0.2% below where it was late Friday.

In overseas markets, the benchmark stock indexes in London, France and Germany all rose more than 1%, on the back of hopes for more mergers and rising valuations.

In Asia, the benchmark indexes in Hong Kong, India and Taiwan also rose more than 1%, while Tokyo markets were closed for a holiday.

The U.S. bond markets will be open, but close at 2:00 p.m. Eastern.

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LONDON (MarketWatch) -- European shares rose on Tuesday, the first trading day of 2007, as investors continued to back stocks on the Continent on the back of hopes for more mergers and rising valuations.

"We're off to a great start," said Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, adding that the overall tone for the market seems pretty positive at the moment.

"It's as if all the factors that have been driving equity markets recently -- such as deal making -- are still pretty much in play," he said.

The French CAC-40 index (FR:1804546: news, chart, profile) rose 1.2% at 5,608.87 led by gains from shares of Suez (FR:012052: news, chart, profile) and Gaz de France (FR:GAZ: news, chart, profile) amid continued speculation on whether their merger will proceed.

The French market gains were broad based, with only one component of the CAC-40, Veolia Environnement, trading in negative territory.

Elsewhere, the U.K. FTSE 100 index (UK:UKX: news, chart, profile) rose 1.2% at 6,292.80 and the German DAX Xetra 30 index (DX:1876534: news, chart, profile) increased 1.1% at 6,666.81.

The pan-European Dow Jones Stoxx 600 index (ST:SXXP: news, chart, profile) advanced 1% at 368.77, helped by increases in metals companies including miner BHP Billiton, up 2.6%, and car producers including DaimlerChrysler, up 1.9%.

The gains came with U.S. markets closed to observe a day of mourning for former President Gerald Ford, who died in the past week at age 93.

The coming week will feature just three trading sessions, as U.S. equities markets will be shut on Monday for the New Year's Day holiday and on Tuesday for a national day of mourning for former President Gerald R. Ford, who died in the past week at age 93.

The four-day market close will mark the longest stretch in which U.S. equities have not traded since the September 11, 2001 attacks, when the market was shut for six days.

"The market is poised to move higher in the new year," said Kevin Kruszenski, head of trading at KeyBanc Capital.

In recent months there were concerns about a hard landing for the economy in 2007, but the market's psychology has turned more positive after stronger recent reports. In the first week of the year, "We'll be looking for more signs that the economy is still growing," Kruszenski said.

Key data reports due next week will include the minutes from the December Federal Open Market Committee meeting on Wednesday. The minutes were to have been released on Tuesday, but the Federal Reserve also will close Tuesday to mark Ford's passing.

Investors will scrutinize the FOMC members' thoughts on economic strength and the pace of inflation for clues on the economic policy outlook.

Perhaps the most influential report of the week will be the December unemployment report, due out on Friday. Investors will be eager to gauge the health of the labor market and the pace of wage inflation, which is carefully monitored by the Fed in making rate decisions.

Kruszenski said market momentum in early 2007 also should be bolstered by consolidation activity. "Companies still have a lot of cash on their balance sheets and there's a strong trend of M&A, and I don't see that changing in 2007," he said.

"That being said, the interest rate market had begun to discount rate cuts by the Fed based on a slowing economy, but now that we haven't seen any signs of a collapse, there could be some backlash on interest-rate sensitive stocks," such as financials and mortgage brokers, Kruszenski said.

Michael Malone, a trading analyst at Cowen & Co, said benign price pressure also should benefit the market as it kicks of the year. .

"Other economic data suggest that inflation remains benign, keeping long-term rates low and helping support housing, which has been the biggest overhang for the market," he said.

This should help support the market, at least in the early goings of 2007, even after the uninterrupted rally seen over the past six months, Malone added. "One can certainly expect the trend remains up," he said.

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