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By Bill Rigby

NEW YORK (Reuters) April 5- Stocks rose to their highest closing levels in a month on Monday as investors welcomed good service-sector data and looked forward to a solid first-quarter earnings season.

It was the third session of gains for the major indexes, which got a boost last week from the biggest monthly jump in new jobs in almost four years.

General Electric Co. (NYSE:GE - news) led the S&P 500 higher as it prepares to report quarterly earnings later this week, while American International Group Inc. (NYSE:AIG - news) -- set to join the Dow on Thursday -- jumped after a Barron's article said the insurer's shares had room to run upward.

U.S.-listed shares of Nortel Networks Corp. (NYSE:NT - news)(Toronto:NT.TO - news) fell sharply as the Securities and Exchange Commission (news - web sites) launched a formal probe of financial restatements at the telecom equipment maker.

In a light week for economic data, investors are looking for strong earnings this week from corporate heavyweights GE, Alcoa Inc. (NYSE:AA - news) and Yahoo Inc. (NasdaqNM:YHOO - news)

"Earnings are going to be very good, but we don't think they are fully priced in," said Philip Orlando, senior portfolio manager at Federated Investors' large-cap growth fund. "There is still a way to go to the upside to fully reflect and discount good corporate earnings."

The Dow Jones industrial average (^DJI - news) ended up 87.78 points, or 0.84 percent, at 10,558.37. The Standard & Poor's 500 Index (^SPX - news) closed up 8.76 points, or 0.77 percent, at 1,150.57, based on the latest data. The technology-focused Nasdaq Composite Index (^IXIC - news) rose 21.95 points, or 1.07 percent, to 2,079.12.

Trading was lighter than recent days, as Wall Street started a shortened week when many traders take a vacation for Easter or Passover. U.S. financial markets are closed on Friday.

About 1.4 billion shares changed hands on the New York Stock Exchange (news - web sites), in line with the daily average for last year. About 1.7 billion shares were traded on Nasdaq, below the 1.8 billion daily average last year.

Decliners outnumbered advancers by a ratio of 6 to 5 on the NYSE while advancers outpaced decliners by 10 to 6 on Nasdaq.

The market got off to a strong start with a report showing growth in the U.S. services sector hit a record high in March, offering investors more reassurance that the economic recovery remains on track.

GE led the S&P 500 higher, rising 52 cents, or 1.7 percent, to $31.58. The wide-ranging conglomerate, whose businesses range from financial services to the manufacture of jet engines and light bulbs, is expected to report higher revenues and profit when it presents its latest quarterly scorecard on Thursday.

AIG jumped after an upbeat report in Barron's, which covered Chief Executive Maurice Greenberg's plans to relay his choice of a successor to the company should he ever leave it, providing a little comfort on an issue that has nagged at investors for several years. AIG shares rose $1.69, or 2.3 percent, to $75.99.

Cigna Corp. (NYSE:CI - news) surged after the health insurer raised its earnings outlook for the first quarter of 2004 and the full year. Its shares jumped $6.90, or 11.4 percent, to $67.55.

Nortel was the second-heaviest traded issue on the New York Stock Exchange, dropping 23 cents, or 3.7 percent, to $6.06 after the SEC issued a formal order of investigation in connection with last year's results restatement and a warning in March that a second restatement would be needed.

Among Nasdaq's most heavily weighted stocks, Microsoft Corp.(NasdaqNM:MSFT - news) was up 10.1 cents, or 0.4 percent, at $25.951. On Friday, Microsoft and rival Sun Microsystems Inc.(NasdaqNM:SUNW - news) settled their bitter antitrust battles. Shares of Sun Micro, the most heavily traded on Nasdaq, fell 12 cents or 2.4 percent to $4.94.

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