Traders watch share prices climb

The Dow settled 1.3% higher at 9,039, its strongest close since August last year.

Wednesday's rally came in response to official figures showing that the economically dominant services sector grew strongly last month, reinforcing hopes that the world's biggest economy may be poised for recovery.

The Institute for Supply Management's closely-watched services index rose to 54.5 points in May from 50.7 the previous month.

Any reading above the 50 mark indicates expansion.

The figures came in ahead of analysts' forecasts, with most economists expecting a score of just 52.

Recovery hopes

"This is early evidence that there may be the turnaround in the second half that many economists have been predicting," said Jake Pasternak, senior economist at Chmura Economics and Analytics.

"If manufacturing bounces back, and services continues to stay strong or gets stronger, that bodes well for the economy."

Economic signals have been mixed in recent months, with rising unemployment and slower than expected growth in consumer spending taking the gloss off solid manufacturing and productivity figures.

Separately, Alan Greenspan, the head of the US central bank, has warned that the US could be at risk of sliding into a deflationary spiral, where falling prices choke off consumer spending and halt economic growth.

Market outlook

But the victory of US-led forces in Iraq has reinvigorated share prices, with the Dow climbing nearly 20% since mid-March.

While some analysts reckon that the rally could soon run out of steam, others hope that its recent performance could herald the start of a recovery after a prolonged period of falling share prices.

The Dow's latest close is still far short of its all-time peak of 11,722, reached on 14 January 2000 when the technology and telecoms bubble was at its height.