By Mike Bird

U.S. stocks rallied with oil prices Tuesday, the first major trading day of the new year.

The Dow Jones Industrial Average jumped 150 points, or 0.8%, to 19911 shortly after the opening bell. The S&P 500 added 0.7% and the Nasdaq Composite rose 0.8%.

Stocks ended 2016 on a bright note, with the blue-chip index rising double-digit percentages to log its best year since 2013. With corporate earnings rebounding, U.S. economic growth accelerating and investors betting the new administration will implement business friendly policies like tax cuts and fiscal stimulus, many analysts and investors expect the gains to continue."We ended the year with nothing to dampen the optimism about the 2017 economic outlook," said Kit Juckes, global head of foreign-exchange strategy Société Générale SA.

Prospects of easier fiscal policy in the U.S. are likely to take the dollar, which has rallied since the presidential election, even higher, Mr. Juckes said.

The WSJ Dollar Index -- which measures the dollar against a basket of 16 currencies -- was recently up 0.4%.

Analysts are mixed on where the dollar will trade through the year. Analysts at Morgan Stanley expect another 5% rise for the trade-weighted dollar by the end of 2017, while J.P. Morgan forecasts suggest it will fall by 8%.

In commodity markets, U.S. crude oil jumped 2.5% to $55.07 a barrel as investors bet that production cuts set to begin this month will help drain global stockpiles.

The Organization of the Petroleum Exporting Countries and other oil producing countries includingRussia agreed late last year to cut output by 1.8 million barrels a day or around 2% of global production in 2017. While oil prices have climbed in the double-digit percentages since the Nov. 30 deal, many analysts remain skeptical that the producers will stick to the terms of their agreement.

The rise in oil prices lifted energy stocks. The S&P 500 energy sector rose 1.6% on Tuesday, with Marathon Petroleum, Transocean and Valero Energy among the biggest gainers.

Bank stocks -- which have rallied since the election -- climbed, too. The S&P 500 financial sector rose 1.1%.

Meanwhile, yields on global sovereign bonds rose, with the yield on the U.S. 10-year Treasury note climbing to 2.516% from 2.446%, according to Tradeweb. Yields rise as bond prices fall.

Elsewhere, the Stoxx Europe 600 index rose 0.7%.

Shares in Asia closed higher, with Hong Kong's Hang Seng climbing 0.7% and South Korea's Kospi index up 0.9%. Japan's Nikkei 225 was closed for a holiday.

Write to Mike Bird at Mike.Bird@wsj.com

(END) Dow Jones Newswires

January 03, 2017 10:14 ET (15:14 GMT)

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