After stock markets suffered their worst year since the 1930s on fears of a long and deep recession, market analysts were looking ahead to how the next U.S. administration might try to kickstart the economy.

"Today we're seeing some New Year optimism even though volumes are thin," said Andre Bakhos, president of Princeton Financial Group in Princeton, New Jersey.

"People are looking at valuations as we approach earnings season, putting some money to work in situations that by historical standards would be deemed compelling," he said, noting recent record low yields for government bonds.

At 11:15 a.m., the Dow Jones industrial average <.DJI> was up 125.21 points, or 1.43 percent, at 8,901.60. The Standard & Poor's 500 Index <.SPX> was up 11.95 points, or 1.32 percent, at 915.20. The Nasdaq Composite Index <.IXIC> was up 22.39 points, or 1.42 percent, at 1,599.42.

Leading share indices turned negative briefly around the time the Institute for Supply Management said U.S. factory activity fell to a 28-year low in December, showing a more severe contraction in the sector than economists had expected.

But stocks moved higher soon after.

Two of the stocks that defied the slump in 2008 were among the strongest blue-chip risers on Friday. Fast-food chain McDonald's Corp rose 1.8 percent to $63.28 and low-cost retailer Wal-Mart Stores Inc gained 2.2 percent to $57.30.

Both stocks are considered resilient to recession, given their appeal to consumers seeking to spend less.

Analysts said investors were watching closely for more signs of how President-elect Barack Obama will try to jolt the U.S. economy out of its worst slump in decades.

"It is pretty shocking, about what happened (in 2008), but you have put that behind you and figure out where the economy and business is going next," said Kim Caughey, senior equity research analyst at Fort Pitt Capital Group in Pittsburgh.

Obama is due to meet leaders in Congress on Monday to discuss his stimulus plan.

Some Republicans are worried that their Democratic rivals could expand the plan to as much as $1 trillion.

U.S. stocks also rose on Tuesday and Wednesday, before the January 1 holiday, taking the Dow's recovery since touching an 11-year low on November 20 to nearly 22 percent and adding to hopes that the the worst of the stock market rout could be over.

In 2008 as a whole, the Dow fell 33.8 percent, for its bleakest year since 1931; the S&P skidded 38.5 percent; and the Nasdaq posted its worst year ever, with a 40.5 percent drop.

But Caughey of Fort Pitt Capital warned that more bad news was expected from corporate earnings, possibly through the second quarter.

The market on Friday could be helped by the end of selling pressure that typically occurs in December as investors seek to offset losses under U.S. tax rules, she said.

GM shares were up 10.3 percent after the U.S. government on Wednesday paid out the first $4 billion in emergency loans to support the biggest U.S. carmaker. A parallel rescue payment for Chrysler LLC was on hold until the new year.

Chrysler said it remained in talks with the U.S. Treasury to finalize its own $4 billion loan agreement and expected to receive its share of the funding soon.

(Editing by Tom Hals)