NEW YORK - Wall Street resumed its rally yesterday after new data showed that the overall economy is holding up, but isn't too strong to prevent the Federal Reserve from cutting interest rates. The Dow Jones industrial average rose nearly 200 points.

Stocks turned around after two sessions of losses after a report showed that hiring in the U.S. private sector expanded at a faster pace in November. ADP Employer Services said 189,000 jobs were added during the month - an increase that bodes well for consumer spending.

The report raised hopes for a strong November jobs report from the Labor Department tomorrow. Investors were also encouraged yesterday after the department reported that worker productivity advanced at an annual rate of 6.3 percent in the summer, the fastest pace in four years, while wage pressures eased.

"The best news for the market is good news on the economy," said Jack Ablin, chief investment officer at Harris Private Bank. "There might be a general malaise among homeowners these days, but as long as more people are getting paychecks, then the economy can withstand the stress."

Still, there is enough uncertainty in the economy to bolster the argument for lower rates. The financial sector is still struggling from months of credit problems, and the Institute for Supply Management reported yesterday that service-sector growth slowed in November.

The Dow rose 196.23, or 1.48 percent, to 13,444.96, resuming the big recovery it launched last week after a mostly dismal November.

The blue-chip index got an extra boost from component American International Group Inc., which said that, although it was expecting a hefty portfolio write-down in the fourth quarter, the mortgage crisis is manageable. AIG rose $2.70, or 4.87 percent, to $58.15.

Broader indexes also moved higher. The Standard & Poor's 500 index added 22.22, or 1.52 percent, to 1,485.01, while the Nasdaq composite index rose 46.53, or 1.78 percent, to 2,666.36.

Bond prices fell. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.95 percent from 3.90 percent late Tuesday. The dollar rose, and gold prices fell.

The market is pricing in a rate cut next week, Ablin said. Supporting the case for a cut is that central banks globally seem to be open to the idea, a trend that would give the Fed even more room to move.

The Bank of Canada cut rates Tuesday, while the Bank of England and European Central Bank will make rate decisions today.

Investors also weighed a Commerce Department report showing that factory orders unexpectedly rose in October. However, that data were likely offset by a report from the Institute for Supply Management showing that growth in the service sector cooled somewhat in November.