Two major indices posted new record highs as the expected slowdown ahead of Friday's Christmas holiday failed to materialise.

Unlike Europe, where gains were somewhat exaggerated by low trading volumes, New York saw a healthy 700m shares change hands.

The benchmark Dow Jones index ended up 157 points, 1.7%, at 9,202, while the technology-laden Nasdaq index rose 51 points, or 2.4%, to a record 2,172.

New York's rally surprised even the traders

The Standard & Poor's 500 index jumped 24 points, or 2%, to a record 1,228 - its third consecutive day of highs.

"There's a uniqueness to this time of year, because there is no tax-related selling plus the economy is really showing some resilience," said Dick Stein of Noble International Investments.

The rally was once again sparked by the technology sector. America Online, the world's largest Internet services provider, could not be stopped as its shares surged ahead following news that it was to join the benchmark blue chip Standard & Poor's 500 Index.

Europe buoyant

London's leading shares showed healthy gains after a flat start, despite thin trading volumes.

Sentiment was boosted by hopes of further interest rate cuts after the minutes of the last Bank of England Monetary Policy Committee meeting showed a unanimous decision to cut rates.

The FTSE 100 index of leading shares finished 65 points higher (1.1%) at 5908.

Other European markets were also preoccupied with Christmas and getting ready for the launch of Europe's new single currency on 1 January 1999.

Frankfurt shares started down but edged higher buoyed by Wall Street's rise on Tuesday.

After another positive start on Wall Street, German shares moved ahead, with the Dax index closing 2.6% up on the day or 126 points at 4951.

Dealers were, however, worried by the low volumes. "With these volumes, anything is possible," said Gerald Kany who is with customer trading at Dresdner Bank in Frankfurt.

It was a similar picture in Paris where the Cac 40 index finished 51 points higher or 1.4%.

Asia gloomy

Most Asian stock markets headed downwards on Wednesday but trade was thin.

Hong Kong shares fell 1.73% and Sydney shares dipped 0.17%.

Tokyo's market, meanwhile, was closed for the emperor's birthday, a national holiday.

Tokyo's key Nikkei stock index had dropped 373.50 points on Tuesday, to close at 13,779 - its lowest since 30 October.

Share prices fell on fears that declines in the bond market would hit Japan's ailing banks.