By 1400 GMT the Dow Jones industrial average was up 25.23 points at 9,241.53, building on last week's gain of 314 points and approaching its record high of 9,380.

The technology-heavy Nasdaq average was up 24 points at 2,187 and the S&P 500 was up 4 points at 1,230.

New York's rally surprised even the traders

London shares which had failed to respond to Wall Street's festive surge last week remained down 41.6 points at 5867.2. The stock exchange was closed on Monday for the Bank Holiday.

In Frankfurt, shares closed higher in extremely low volume, led by a strong performance by the newly merged car manufacturer DaimlerChrysler.

The Xetra DAX closed at 5,040.15, up 61.53 while the DAX closed Monday's floor session up 93.00 at 5,044.77.

Shares in DaimlerChrysler rose 4.9% after the company forecast a 13% increase in sales this year and a dramatic rise in profits. Euro hesitation

In Paris the CAC-40 blue-chip index ended slightly higher after it had ceded gains of 0.5% to its pre-Christmas level in thin trade.

French stocks rose 0.02%, or 0.68 points higher at 3,873.10, after trading in a 41-point range. Volume totalled a meagre Ffr 3.9bn. One senior salesman said: "Anyone with an order can move this market, volumes are so thin, and most people are very disinterested," said one trader. Some end-of-year window dressing and arbitrage is exaggerating the market's direction in sparse trade - we are very, very quiet because most of our clients finished re-adjusting their portfolios before last month's settlement.

"The technicalities of trading in euros are as yet unknown and most clients are waiting until the launch to avoid settlement difficulties," he added.

Other European bourses were up, but all reported stagnant trade that tended to exaggerate moves. Tokyo falls back

Asian markets overnight offered no real direction.

Tokyo slipped back on disappointment with a Standard & Poor's downgrade of seven Japanese banks.

Continued worries that higher bond yields could hurt Japanese corporate activity also plagued the market.

The Nikkei average of 225 selected issues fell 72.72 points to 13,706.73.

"Until bond prices settle down, the stock market is going to remain unstable," said Sachio Ishikawa, manager at Chuo Securities.

Hong Kong moved ahead with the New York rally.