NEW YORK, United States (Reuters):

United States stocks burst higher yesterday in light post-holiday trading after data showed a surprisingly-strong rise in new home sales, which helped the dollar reverse some of its losses and put pressure on government bonds.

The government reported that new home sales beat expectations and rose 3.4 per cent in November to an annual pace of 1.047 million units, which eased concerns about the extent of the housing market's slowdown and tempered expectations that the Federal Reserve could cut interest rates early next year to stimulate growth.

U.S. blue-chip stocks also benefited from news that Toyota Motor Corp had said top executives from Ford Motor Company and the Japanese carmaker had met recently, even though Toyota said the two had not discussed the possibility of an alliance.

That news had also boosted Asian stocks and set a positive tone for trading in the European equity markets, which re-opened on Wednesday after the Christmas and Boxing Day holidays.

"Ford and Toyota, all they did was meet, and that would be positive for the market because it is another potential deal and these deals have bolstered the market gains throughout the year," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.

The Dow Jones industrial average jumped 102.94 points, or 0.83 per cent, to end at a record 12,510.57. The Standard & Poor's 500 Index advanced 9.94 points, or 0.70 per cent, to finish at 1,426.84. The Nasdaq Composite Index climbed 17.71 points, or 0.73 per cent, to close at 2,431.22.

Europe's FTSEurofirst 300 was up 0.8 per cent at 1,484.65, just shy of a 5-1/2 year high set last week, while Tokyo's Nikkei gained nearly 0.5 per cent to 17,248.63.

DOLLAR DOWN

The dollar was largely down on the day against other major currencies, although the housing data did help the greenback trim some of those losses.

"The new home sales report did beat the consensus forecast, and that, I think, provides further evidence to support the view that the worst of the housing downturn may have passed," said Alex Beuzelin, senior market analyst for Ruesch International in Washington, D.C.

With the European Central Bank widely expected to keep raising rates and the Bank of Japan possibly discussing tighter monetary policy at its meeting in January, the dollar slipped as investors returned from the Christmas holiday with more conviction that the U.S. currency's yield advantage will fade next year.

The euro was up 0.2 per cent against the dollar at $1.3123, but was off a session high of $1.3178, according to Reuters data. Against the yen, the dollar was down almost 0.4 per cent at 118.67 yen.

Data showing weaker-than-expected Japan retail sales was overshadowed by a media report that the Bank of Japan will probably discuss raising interest rates at next month's policy meeting.

Currency trading in Asia was disrupted after strong earthquakes near Taiwan damaged undersea telecommunications cables, restricting international telephone traffic and Internet speeds, but trade in the North American markets was not affected.

U.S. benchmark Treasury note prices, meanwhile, were off almost a full point on the day at 99 27/32, bringing yields up to 4.64 per cent, taking their lead from a fall in European government bond prices and the stronger housing data.

In energy and commodities, U.S. light crude oil was down on the day at US$60.55 a barrel as continued warm weather in the United States and Japan offset geopolitical jitters over a nuclear dispute between the West and oil producer Iran.

COMEX February gold was up $3.70 at US$630.60 an ounce, aided by the weaker dollar.