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Upbeat Data Spark Rally

Traders decide to do some buying after two days of declines.

Updated from 4:13 p.m. EST

Stocks in the U.S. shook off two days of declines and rose Wednesday as a string of positive economic data lured in buyers.

The

Dow Jones Industrial Average

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jumped 196.23 points, or 1.48%, to 13,444.96. Twenty-nine of the Dow's 30 components finished in positive territory, led by gains of 4.9% and 4.2%, respectively, in

AIG

(AIG) - Get Report

and

Microsoft

(MSFT) - Get Report

.

Only

McDonald's

(MCD) - Get Report

lost ground.

The

S&P 500

was up 22.22 points, or 1.52%, at 1485.01, and the

Nasdaq Composite

climbed 46.53 points, or 1.78%, to 2666.36.

Breadth was decidedly positive. On the

New York Stock Exchange

3.60 billion shares changed hands, as advancers beat decliners by a 5-to-2 margin. Volume on the Nasdaq reached 2.20 billion shares, with winners topping losers nearly 2 to 1.

"We had a really good rally on good economic numbers that, at least today, point to an economy that isn't slowing as much as people thought," said Paul Nolte, director of investments with Hinsdale Associates. "We may yet be able to gracefully work out of the subprime and housing problems."

Investors bid up stocks after ADP's monthly private employment survey showed an increase of 189,000 workers in November, nearly four times what was expected. Payroll additions for October were revised upward by 13,000 to 119,000.

The ADP report is a fairly new entrant to the economic calendar, and it doesn't always move markets, but this time it contributed to a brighter mood.

Each month, it's released two days ahead of the government's own jobs report. The numbers sometimes disagree by a sizable margin, and indeed analysts expect the upcoming Labor Department report to indicate an increase of around 78,000 jobs.

The good news was extended with data showing that nonfarm productivity jumped 6.3% in the third quarter, up from the preliminary estimate of 4.9%. Unit labor costs fell 2%, much steeper than the earlier reading of a 0.2% decline.

Those numbers bolstered the hopes of traders who want to see signs that the economy will avoid a recession, but at the same time allow for more

Federal Reserve

rate cuts. Whether both can be achieved simultaneously is the question. The Fed next meets Dec. 11.

"Continued strong productivity growth helps keep inflation in check in the face of rising oil prices, and accommodates moderate wage growth," said Peter Morici, professor at the University of Maryland School of Business and former chief economist at the U.S. International Trade Commission. "The Fed can focus on the subprime crisis and stabilizing credit markets without fear of a significant surge in inflation."

Shortly after the market opened for trading, the Institute for Supply Management said its services index for November slid to 54.1, below analysts' estimates. On Monday, the ISM's manufacturing index dipped to 50.8 last month from October's 50.9.

Also on the economic docket, the Census Bureau said factory orders for October rose 0.5%. Excluding transportation, orders rose 0.6%.

Oil prices were another focus after OPEC said it will not increase production quotas. Additionally, weekly inventory data from the Energy Department showed a decline of 8 million barells in crude stockpiles. Crude oil spent most of the session in positive territory before losing steam late, ending lower by 83 cents at $87.49 a barrel.

U.S. Treasury securities also were weak. The 10-year note was down 12/32 to yield 3.94%. The 30-year bond was off 1-6/32 in price, yielding 4.42%.

On the corporate front,

Comcast

(CMCSA) - Get Report

slumped 12.3% after the company lowered its forecast for subscriber gains, cable revenue growth and operating cash flow. Comcast shed $2.55 to $18.18.

Another loser was bond insurer

MBIA

(MBI) - Get Report

, who sank 16% after Moody's raised the possibility of cutting its financial strength rating. MBIA lost $5.21 to close at $27.42.

Also,

Fannie Mae

said it will cut its dividend by 30% next year due to worsening conditions. Still, shares closed higher by 95 cents, or 2.7%, at $36.13.

Following the move, Credit Suisse downgraded Fannie Mae and the other government-sponsored mortgage buyer

Freddie Mac

to underperform from neutral. Piper Jaffray also downgraded the stock and Friedman Billings cut its price target on the shares by $5 to $30. Additionally, Fitch downgraded Freddie Mac's preferred stock rating to A-plus from AA-minus.

Shares of Freddie, though, finished with a gain of $2.36, or 7.3%, to $34.67.

As for other analyst calls, Citigroup sliced its fourth-quarter estimates on

Goldman Sachs

(GS) - Get Report

,

Lehman Brothers

(LEH)

and

Merrill Lynch

(MER)

, while Thomas Weisel upgraded

Intel

(INTC) - Get Report

.

The Wall Street Journal

reported that New York prosecutors have subpoenaed a number of financial firms and are asking for information on mortgage-backed securities. The report, citing people who are aware of the situation, said Merrill,

Bear Stearns

(BSC)

and

Deutsche Bank

(DB) - Get Report

are among those getting subpoenas.

Both Deutsche Bank and Merrill Lynch added 1.1%, while Bear Stearns was off 1.1%.

Elsewhere,

Chico's FAS

(CHS) - Get Report

said after the previous close that third-quarter earnings fell 44% from a year ago as same-store sales dropped nearly 10% during the quarter. The stock fell by $1.44, or 12.5%, to $10.06.

Overseas markets were mostly higher. In Asia, Hong Kong's Hang Seng rose 1.6% overnight, and Japan's Nikkei 225 added 0.8%. Among European bourses, London's FTSE 100 rose 2.8%, and Germany's Xetra Dax was up 1.7%.