U.S. stocks rallied Tuesday, recovering from the previous session's fall, as more mergers-and-acquisition news and speculation that the Federal Reserve may cut interest rates next year helped stir some demand during what is historically a positive week for stocks.

The Dow Jones industrial average advanced 64.41 points, or 0.52 percent, to end at 12,407.63. The Standard & Poor's 500 Index added 6.14 points, or 0.44 percent, to finish at 1,416.90. The Nasdaq Composite Index gained 12.33 points, or 0.51 percent, to close at 2,413.51.

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Shares of miners Freeport McMoRan Copper & Gold Inc. and Phelps Dodge Corp. climbed after U.S. antitrust authorities said they approved Freeport's bid to buy Phelps Dodge.

Financial services companies' shares like Citigroup (C) Inc. and Bank of America Corp. (BAC) also helped push indexes higher amid expectations that a favorable interest-rate environment may be in the offing next year.

"The feeling is if we're going to have a scenario of more accommodating monetary policy from the Fed and accelerating growth as the year progresses, the real winners will be financial intermediaries," said Michael Metz, chief investment strategist at Oppenheimer & Co. in New York.

He was referring to market speculation that the Federal Reserve may cut interest rates sometime in 2007.

All but four of the 30 Dow components finished higher.

Major indexes held onto gains despite early reports of sluggish U.S. holiday sales. Retailers can only record revenue from gift cards when the cards are redeemed, so part of Christmas sales may be logged after the holiday. The Standard & Poor's retail index was down 0.3 percent.

Volume was almost less than half the normal average on the New York Stock Exchange with many market players taking the day off following the Christmas holiday.

The yield on the 10-year U.S. Treasury note slipped to 4.61 percent from 4.62 percent on Friday on signs of lackluster holiday sales and a regional survey from the Dallas Fed that showed a contraction in December's manufacturing activity.

Shares of Citigroup rose 1 percent, or 57 cents, to $55.12 while Bank of America shares gained 0.7 percent, or 35 cents, to $53.70 on the New York Stock Exchange. Citigroup was among the major gainers in both the Dow and the S&P 500, while Bank of America also was among the stocks giving the S&P 500 a lift.

In M&A news, shares of Internet networking company Savvis Inc. rose after telecommunications services provider Level 3 Communications Inc. said it planned to acquire Savvis' content delivery network assets.

Savvis shares gained 3.1 percent, or $1.10, to $37.02, while Level 3 shares fell 1.2 percent, or 7 cents, to $5.59, both on the Nasdaq.

Freeport McMoRan shares advanced 1.3 percent, or 70 cents, to $54.54, while Phelps Dodge shares climbed 1.5 percent, or $1.73, to $118.63 on the NYSE.

Shares of energy companies, including Exxon Mobil Corp. , gained despite a sharp decline in crude futures,

after Iran threatened to use oil exports as a weapon following the U.N. Security Council's decision to impose sanctions on its trade in nuclear goods.

Exxon Mobil's stock advanced 0.9 percent, or 64 cents, to $76.05 on the NYSE.

U.S. crude oil futures for February delivery slid $1.31 to settle at $61.10 a barrel as mild weather cut demand for winter fuel.

Trading was extremely light on the NYSE, with about 793.3 million shares changing hands, far below last year's daily average of 1.61 billion, while on Nasdaq, about 1.1 billion shares traded, below last year's daily average of 1.80 billion.

Advancing stocks outnumbered declining ones by a ratio of nearly 7 to 3 on the NYSE and by 8 to 5 on Nasdaq.

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