The holiday shopping season is underway, and stocks, at least so far, are among the hottest-selling items.

The Dow Jones industrial average, at 10,916.09, is up 700.87 points, or nearly 7 percent, since Oct. 21 and is again flirting with 11,000, a level not seen since June 7, 2001. The Dow is up 1.2 percent for the year.

The broader market has also rallied in recent weeks. The Standard & Poor's 500-stock index is up 7.5 percent since Oct 13. and 4.4 percent for the year. Technology shares such as Google Inc., Yahoo Inc. and Apple Computer Inc. have driven the rally, and their gains are reflected in the tech-dominated Nasdaq composite index, which is up 10.9 percent since Oct. 12 and 3.9 percent on the year. Both the S&P 500 and the Nasdaq are at 41/2-year highs.

But can this early-arriving Santa Claus rally continue?

Many traders and market strategists say it can, provided oil prices and overall inflation stay in check, shoppers pile up their carts over the holidays, and the housing market continues to cool off rather than collapse.

"Bit by bit we are seeing the pieces of the economic mosaic come together that could support a sustained stock market rally, at least in the short term" said Phil Dow, chief equity strategist at RBC Dain Rauscher. "But in the longer term, there are still significant questions, no doubt about it."

This year's fourth-quarter advance mirrors a similar surge last year and fits the historical trend in which stocks tend to turn in their best performances in the final months of the year. The current rally began in late October as investors embraced a drop in oil prices and evidence that hurricanes Katrina and Rita had inflicted little lasting damage on the economy.

The advance continued this month as investors warmed to Ben S. Bernanke as the anointed successor to Federal Reserve Chairman Alan Greenspan. The market also cheered relatively tame inflation numbers and ongoing double-digit corporate earnings growth. Attractive stock prices have also enticed investors into the market. Overall, stocks in the S&P 500 now trade at 14 times expected 2006 earnings, according to Dow of RBC Dain, beneath the historical average of about 17.

This week, investors seized on minutes from the Fed's Nov. 1 meeting as a signal that the central bank could stop raising interest rates early next year. Higher rates make mortgages and other kinds of consumer debt more expensive and make it more costly for companies to borrow money to expand. The Fed has raised its key rate 12 times since June 2004, and the target rate for overnight loans between banks is now 4 percent, the highest in more than four years.

But faith in a quick end to rate increases is by no means uniform across Wall Street. Merrill Lynch chief U.S. strategist Richard Bernstein said he viewed recent comments from Bernanke as a virtual guarantee that the incoming chairman will raise rates at least once more when he takes over in February, if for no other reason than to cement his credentials as an inflation fighter, which is critical to creating confidence among bond market investors. Inflation erodes the value of a bond's fixed payments.

"People who want to watch the Fed need to be very careful," Bernstein said. "Something tells me [Bernanke] is not going to be as generous as everyone thinks." Bernstein added that the Fed has often mishandled the interest rate tightening cycle. Several times, he said, the Fed pushed rates too high, choking off economic growth. "Greenspan was five for five in getting it wrong," Bernstein said.

In addition to interest rates, other factors may affect the markets' direction. The recent cold snap in the Northeast could increase demand for natural gas, driving the commodity's price higher and sticking consumers with nasty bills. And a more rapid decline in home prices could also cut deeply into discretionary spending as homeowners begin to feel less flush. With so many professionals, including mortgage brokers and real estate agents, dependent on the housing market, a quick collapse could spur markedly higher unemployment.

"You can never be 100 percent sure that instead of a soft landing you won't get a much harder landing," said Klaus Martini, global chief investment officer at Deutsche Bank's Private Wealth Management division.

But those issues have not weighed heavily on investors' minds in recent days. Traders and money managers said falling oil prices have been the biggest factor in the rally. After approaching $70 a barrel after hurricanes Katrina and Rita smashed the Gulf Coast, the price of a barrel of crude is back below $60, easing concerns that high pump prices will cut into consumers' holiday spending.

Technology shares, driven by Google's surge to $422.86 per share, have led the rally, taking over for homebuilders such as Toll Brothers Inc., which have fallen on signs of a weakening real estate market. Strategists say the tech rally is driven by hope that consumers will keep spending on hot gadgets, such as Apple's iPod, while companies will use their vast cash reserves next year to upgrade their information technology.

Search firms such as Google and Yahoo are rising based in part on their attractiveness to advertisers, which pay only when someone clicks on their ads. Google's surge is also based in part on the test launch of Google Base, a user-controlled searchable database.

Neil J. Hennessy, president and portfolio manager of Hennessy Funds Inc., said the rally, also largely driven by consumer discretionary stocks, will get its next test when holiday retail sales figures start coming in. He expects them to be robust.

"All I know is that people like to be happy, and spending money on other people makes them happy," he said.

Fidelina Pastor holds a sign advertising new homes in San Diego. Analysts said that the housing market crashing instead of cooling would hurt stocks.