DOW - Good start in 2012

Dow

12,397.38

+179.82

+1.47%

NEW YORK (AP) -- The stock market got a big jump on a better year.

After a flat 2011, stocks rose sharply Tuesday in the first trading of 2012 after investors returned from the holiday and found encouraging economic reports from the United States and around the world.

The Dow Jones industrial average rose 179.82 points, or 1.4 percent, to 12,397.38, its highest close in more than five months.

The Standard & Poor's 500 index, a broader gauge than the Dow, finished up almost 20 points at 1,277. The S&P finished 2011 almost exactly where it started — down a sliver, 0.04 of a point.

The market may have gotten an extra boost from what's known as the January effect: Investors sell stocks at the end of the year to lock in losses for tax purposes, then come back in January and buy stocks again.

The effect could be more pronounced this year because the stock market was so volatile in 2011 and more investors had losses to take, said Sam Stovall, chief equity strategist at Standard & Poor's Capital IQ.

Money managers also usually get a fresh infusion of cash at the beginning of the year because workers who maxed out their contributions to retirement accounts well before the previous year ended start contributing again.

These investors are back hunting for bargains, he said: "Investors are a lot like dieters and look to January as a new beginning."

January is a fairly good predictor of the year for U.S. stocks. Only seven times since 1950 has January turned out to be a "major error" in predicting the year to come, according to the Stock Trader's Almanac.

In other words, whichever direction the market has gone in January, the rest of the year has usually followed.

The "major errors" are usually extraordinary events, the almanac points out. In 2001, for example, the S&P 500 rose 3.5 percent in January, but the market was rocked by the Sept. 11 attacks and finished the year down 13 percent.

The first day of the year is less useful for fortune-telling than the first month. If you were to bet on whether the market would finish the year up or down based on how it performed the first day, you would be right only about half the time.

And there's no special power to January. A strong market in any single month makes it more likely that the market will be higher over the 12 months to come, Dan Greenhaus, chief global strategist at the brokerage BTIG, pointed out in a note to clients.

"As goes any month, so goes any 12-month period," he said. "This is not the exclusive province of January."

Predictive ability aside, the Dow's 179-point gain was its third-biggest for the first trading day of the year and its biggest gain on the first day since 2009, when the Dow climbed 258 points.

Tuesday was also the fourth time in a row the market rose on opening day. On Jan. 3, 2011, on its way to flat-lining for the year, the S&P rose 14 points.