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Trading was light, a sign skepticism remains high. Just 6.8 billion shares changed hands during the day on U.S. exchanges, below the daily average of 8 billion shares.

After the market's close, Fitch Ratings revised to negative the outlook on the United States' AAA credit rating after a special congressional committee failed to agree on at least $1.2 trillion in budget cuts.

Retailers were among the strong sectors following an robust start to the U.S. holiday shopping season. Record sales over the Thanksgiving weekend buoyed gains in large retailers, including Macy's, which rose 4.7 percent to $30.84.

The gains follow a seven-day string of losses on the benchmark S&P 500. The latest attempt to get the euro zone problems on the path to improvement involve a Franco-German push for tighter budgetary control over euro zone members.

Analysts say the move may not be followed by more buying without an actual plan for euro zone help.

"Unfortunately, these rallies are short-lived until real dollars or real euros are injected into the financial system," said Chad Morganlander, portfolio manager at Stifel, Nicolaus & Co in Florham Park, New Jersey.

Germany and France pushed to acquire powers to reject national budgets in the euro zone that breach European Union rules ahead of an EU summit on December 9.

An Italian newspaper report suggested the International Monetary Fund was preparing a rescue plan for Italy, but the IMF denied the report.

The Dow Jones industrial average was up 291.23 points, or 2.59 percent, at 11,523.01. The Standard & Poor's 500 Index was up 33.88 points, or 2.92 percent, at 1,192.55. The Nasdaq Composite Index was up 85.83 points, or 3.52 percent, at 2,527.34.

Stock futures showed little movement after the announcement from Fitch, and analysts said it was probably expected by the market.

"I don't think we're going to see much of a market reaction. It's generally confirmation of what's been built into the market," said Fred Dickson, chief market strategist at The Davidson Cos in Lake Oswego, Oregon.

During the regular session, all 10 S&P sectors were up sharply, but energy and consumer discretionary stocks were among sectors with the biggest gains. The S&P energy index was up 3.6 percent, while the S&P consumer discretionary index was up 3 percent and S&P financials rose 3 percent.

Weak consumer spending has been a worry for investors, and the holiday period would likely confirm whether there's been any improvement in that area.

A report on consumer confidence in November, which is expected to have risen, is due Tuesday.

The S&P retail index advanced 3.1 percent, including Best Buy Co Inc, which added 3.4 percent to $26.49.

(Reporting by Caroline Valetkevitch; Editing by Kenneth Barry)

In a written opinion, Manhattan federal court judge Jed Rakoff said the proposed settlement was "neither reasonable, nor fair, nor adequate, nor in the public interest."

The rejection was not a surprise since the judge had made clear at a November 9 hearing that he had major problems with the proposal to settle a major securities fraud case arising from the financial crisis.

A spokeswoman for Citigroup declined to comment, pending a review of the decision. The U.S. Securities and Exchange Commission declined immediate comment.

The SEC accused Citigroup of selling a $1 billion mortgage-linked collateralized debt obligation, Class V Funding III, in 2007 as the housing market was beginning to collapse, and then betting against the transaction.

Rakoff wrote that it was difficult to discern "from the limited information before the court what the SEC is getting from this settlement other than a quick headline."

The settlement would have required the third-largest U.S. bank to give up $160 million of alleged ill-gotten profit, plus $30 million of interest. It also would have imposed a $95 million fine for the bank's alleged negligence, less than one-fifth what Goldman Sachs Group Inc paid last year in a $550 million SEC settlement over a different CDO.

"If the allegations of the complaint are true, this is a very good deal for Citigroup; and, even if they are untrue, it is a mild and modest cost of doing business," the judge said.

One Citigroup employee, director Brian Stoker, was also charged by the SEC. He is contesting those charges. Rakoff consolidated the two cases and set a trial date of July 16, 2012.

Rakoff wrote that the SEC "has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances."

It was not the first time in recent years that Rakoff rejected a proposed SEC settlement with a major bank.

In 2009, he struck down a $33 million settlement with Bank of America Corp over the takeover of Merrill Lynch & Co, saying it punished shareholders who were victims of the alleged fraud. He later approved a $150 million accord.

The case is SEC v Citigroup Global Markets Inc, U.S. District Court, Southern District of New York, No. 11-07387.

(Reporting by Grant McCool; Editing by Derek Caney and Matthew Lewis)

Record numbers of shoppers spent billions of dollars in stores and online over the weekend on discounted televisions, toys and other goods. Stores opening earlier than ever, the usual deep discounts and more free shipping offers helped millions of shoppers shrug off economic concerns.

Best Buy Co Inc (BBY.N), Macy's Inc (M.N) and Wal-Mart Stores Inc (WMT.N) were seen by some analysts as strong performers over the big weekend. Best Buy and Macy's shares rose in premarket trading while Wal-Mart shares were flat.

Nice weather across much of the country also helped. It was the warmest Black Friday weekend in five years, with the least snowfall since 1999. In terms of rainfall, it was the driest Black Friday in five years, according to Planalytics.

"Favorable weather may have pulled spending forward while also shifting the mix of sales from online to stores," said Credit Suisse analyst Gary Balter.

On Monday, the spotlight shines on online sales. "Cyber Monday" is the biggest online shopping day of the year. Based on the growth seen over the weekend, it is expected to be another banner year online. On Black Friday itself, U.S. online retail sales jumped 26 percent, comScore data showed.

Overall, Thanksgiving weekend sales soared 16.4 percent to $52.4 billion, the National Retail Federation, an industry trade group, said on Sunday.

Investors will get a more detailed reading of results later this week, when some chains including Costco Wholesale Corp (COST.O), Macy's and Target Corp (TGT.N) issue their monthly sales tallies.

"I presume we're going to see strong numbers for November," said Sterne, Agee & Leach analyst Kenneth Stumphauzer.

Brian Sozzi, an independent analyst who follows retail stocks, said he expects many of those stocks to trade higher on Monday, but warned that discounts could come at a price for retailers.

"You have to remember that these were promotionally driven sales and there are still some margin issues," he said.

Wal-Mart was one of the clear winners, he said, along with Best Buy and even Wal-Mart rival Target.

"It's not an all Wal-Mart kind of world," Sozzi said.

Analysts cautioned that there could be a prolonged lull in sales until closer to Christmas.

Sozzi said he was looking beyond chains to other companies that likely benefited from retailers' sales, such as underwear and T-shirt maker Hanesbrands Inc (HBI.N).

"If Wal-Mart had such a strong performance in basic apparel ... you look at something like a Hanesbrands."

Black Friday deals are meticulously planned for months, but extended discounts were found across a wide range of apparel chains, which may suggest that early sales were coming in below plan, said Janney Capital Markets analyst Adrienne Tennant.

Chains such as Aeropostale (ARO.N), Gap Inc's (GPS.N) Banana Republic, bebe (BEBE.O), Charlotte Russe, Children's Place (PLCE.O), New York & Co (NWY.N), Pacific Sunwear (PSUN.O) and Chico's FAS Inc's (CHS.N) White House Black Market pushed their early deals throughout Friday, Tennant said.

At 9:30 a.m. on Friday, the Aeropostale store at Pennsylvania's big King of Prussia mall gave out makeshift coupons on paper, extending a 1:00 p.m. deadline for an additional 20 percent off to 5:00 p.m., and then that deadline was extended for the remainder of the day, Tennant noted.

Home Depot Inc (HD.N) may have had the upper hand among home improvement chains, as Balter noticed people shopping across the store, while at Lowe's Cos Inc (LOW.N) they appeared to concentrate on the doorbusters such as $99 drills.

Both Home Depot and Lowe's shares moved higher in premarket trade.

The NRF expects sales for the November-December holiday shopping season to rise 2.8 percent, slower than the 5.2 percent jump seen in 2010 and roughly in line with the average growth of 2.6 percent seen over the past decade.

(Reporting by Jessica Wohl and Brad Dorfman in Chicago, with reporting by Phil Wahba in New York; editing by John Wallace)

The threat of even more devastating downturns looms if the euro zone does not get to grips with its debt crisis and U.S. lawmakers fail to agree a spending-reduction plan, the Organization for Economic Cooperation and Development warned.

In the absence of decisive action from euro zone leaders, the European Central Bank (ECB) alone has the power to contain the bloc's crisis, the Paris-based OECD said. In the United States, however, the Federal Reserve had little ammunition left.

While solid growth in big emerging economies would provide a boost, slumping global trade would drag on Chinese output, the OECD said.

Its twice-yearly Economic Outlook forecast world growth would slow to 3.4 percent in 2012 from 3.8 percent this year.

That marks a sharp fall from its previous outlook in May, when the OECD estimated the world economy would grow 4.2 percent this year and 4.6 percent in 2012.

Struggling to contain an unprecedented debt crisis, the euro zone has already entered a recession and will eke out growth of only 0.2 percent in 2012, the OECD said, slashing its forecast from 2.0 percent in May.

CENTRAL BANKERS TO THE RESCUE?

The OECD said many key questions about the euro zone's response to the debt crisis remain unresolved, raising doubts about even the bloc's most solid economies, as demonstrated by Germany's difficulties placing bonds with investors last week.

"What we see now is contagion rising and hitting probably Germany as well," OECD chief economist Pier Carlo Padoan told Reuters in an interview.

"So the first thing, the absolute priority, is to stop that and in the immediate the only actor that can do that is the ECB," he added, urging the central bank to commit to a creating a cap on government bond yields as a way of calming the crisis.

With the Federal Reserve already flooding the financial system with liquidity, the U.S. central bank has even less room to act if the world's biggest economy hits a downturn. That prospect was made all the more real by the failure of Congress to agree a deficit-reduction plan, without which deep spending cuts would be triggered.

"The resulting fiscal tightening, which would come automatically, would in our view likely generate a recession in the United States," Padoan said.

Provided that the Congress does reach an agreement, then the U.S. economy is set to grow 1.7 percent in 2011 and 2.0 percent in 2012, down from May forecasts of 2.6 percent and 3.1 percent respectively.

With world trade growth projected to slow to 4.8 percent in 2012 from 6.7 percent this year, even China would not be spared a sharp slowdown, the OECD said.

It forecast that growth in the emerging Asian economic power would slow to 8.5 percent in 2012 from 9.3 percent in 2011.

Slower global trade and confidence knocked by the euro zone's debt crisis could trip up Germany, which the OECD estimated would grow only 0.6 percent in 2012 after a 3.0 percent expansion in 2011. Europe's biggest economy has probably entered a shallow recession at the end of the year, the OECD said.

In a rare bright spot, the Japanese economy was seen rebounding sharply after this year's earthquake and tsunami to achieve growth of 2.0 percent in 2012 following a contraction of 0.3 percent in 2011.

(Editing by Daniel Flynn and Catherine Evans)