Wall Street got off to a strong start in the first week of this year as investors set their sights on a shift by the Federal Reserve away from its policy of steady interest-rate hikes.
The blue-chip Dow Jones Industrial Average zoomed higher by 2.26 percent to 10,959.31 in the week to Friday, reaching its highest level since June 2001.
The broader Standard and Poor's 500 index rallied 2.98 percent over the week to 1,285.45 while the tech-dominated NASDAQ composite soared 4.55 percent to 2,205.32.
The main US indexes are all at four-and-a-half-year highs, with investors shrugging off memories of the lackluster market performance of last year and looking ahead to steady economic growth and a more market friendly attitude from the Fed.
Equities began their week-long rally on Tuesday when new Federal Open Market Committee meeting minutes hinted at a possible halt to rate hikes soon.
More fuel for the rally came on Friday as the US government reported that 108,000 new jobs were created last month -- well below expectations but just enough to keep the economy moving forward.
The report "delivered just what the market wanted: Non-farm payrolls are showing steady growth, but not enough to prompt the Federal Reserve to change its stance on interest rates," said Al Goldman, chief market strategist at AG Edwards.
The strong opening for the year comes after a year in which Wall Street struggled. After a December rally fizzled, the blue-chip Dow industrials lost 0.6 percent over the course of last year. The NASDAQ climbed 1.4 percent over the year, while the S&P 500 rose 3.0 percent.
"People are putting cash to work because there is a sense we can have an economy growing at a decent pace without interest rates rising much further, and without a lot of inflation, save for energy as the only headwind," said Jay Suskind, director of trading at Ryan Beck and Co.
The bulls on Wall Street are banking on the Fed delivering the much-sought "soft landing" -- just enough cooling of growth to keep inflation at bay without sending the world's biggest economy into recession.
Economist Robert DiClemente at Citigroup said a soft landing is likely but still difficult to count on.
"Data and events over the turn of the year have reinforced our judgment that the economic expansion still has solid underpinnings but is likely to moderate ever so slightly in 2006," he said.
This would allow the Fed -- which has been lifting the federal funds rates in quarter-point increments over the past 13 meetings to 4.25 percent -- to pause.
"On balance, activity is expanding very near or below trend rates in a 3.0 to 3.5 percent range, not a pace that would point to obvious upward pressures on interest rates and inflation," he said. "Our base case remains that a January hike to 4.5 percent will be the last for this cycle."
Some experts remain concerned that the Fed may have gone too far -- and point to the so-called inversion of the yield curve, in which short-term interest rates rise above long-term rates.
This has historically been an indicator of recession. The curve was inverted briefly late last month.
"Historically, the US Treasury yield curve has predicted each US recession since 1950 and has made only one false prediction of recession, in 1967," said Stephen Gallagher at Societe Generale.