Mortgage Plan Props Up Stocks

However, the European Central Bank left rates unchanged after its own gathering, and ECB chief Jean-Claude Trichet ramped up the hawkish rhetoric, saying he wants to make sure rising oil prices don't cause consumer prices to climb too quickly.

Bloomberg quoted Trichet as saying there was "strong short-term upward pressure on inflation'' and that he and his fellow policymakers are prepared to "counter upside risks to price stability."

Following Trichet's remarks, London's FTSE 100 and Germany's Xetra Dax dipped 0.1%.

"Trichet made comments that were very anti-inflationary, clearly showing that the ECB is not on board with any rate cut," said Paul Mendelsohn, chief investment strategist with Windham Financial.

The Federal Reserve is facing its own dilemma, and over the past few weeks, officials have offered a mixed message regarding the possibility of added cuts.

While some members appear worried that the housing and credit slump has the potential to undermine economic growth, others express concern that commodity prices are stoking inflation and that easing again will only exacerbate that. The central bank will meet next Tuesday.

Many traders are counting on a cut of at least 25 basis points.

Some analysts believe Friday's jobs report could be crucial to whether the fed funds target rate will be reduced for the third straight time. The Labor Department is expected to say that the U.S. economy added around 70,000 jobs in November. The unemployment rate probably rose to 4.8%, while average hourly earnings, a key inflation metric, should climb 0.3%.

"I'm a little surprised with today's strong finish, especially with an important report in the nonfarm payrolls due tomorrow," said Robert Pavlik, chief investment officer with Oaktree Asset Management. "I'm concerned this rally may not last, especially since the jobs report will be key in determining whether the Fed will cut rates or not."

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