Stocks rallied to the finish line as investors shrugged off a drop in consumer confidence and cheered the bailout of General Motors' finance arm.
The Dow Jones Industrial Average jumped 184.46, or 2.2 percent, to close at 8668.39. The S&P 500gained 2.4 percent, while the Nasdaq advanced 2.7 precent.
General Motors rose more 5.6 percent after the Bush administration expanded its bailout to the auto industry, buying $5 billion in GMAC, GM's equity in auto- and mortgage-finance arm, and increasing a loan to GM by $1 billion.
Ford Motor shares gained 3.2 percent after billionaire investor Kirk Kerkorian sold his remaining stake in the auto makerafter betting more than $1 billion that it would recover. In late October, Kerkorian's investment firm Tracinda began selling Ford shares at $2.43, representing a loss of almost 66 percent from what the fund paid on average.
The tech-heavy Nasdaq outpaced both the Dow and S&P 500 amid strong gains in techs. Chips were scattered around the top of the Nasdaq pack, including KLA-Tencor Broadcomand Xilinx all gained more than 5 percent. GPS maker Garmin rose 5.7 percent.
Over on the Dow, Alcoa was the top gainer, finishing up 9.9 percent, followed by GM and Disney .
Economic news briefly rattled the market.
Consumer confidence fell to a record lowin December, the Conference Board reported. Meanwhile, Midwest business activity continued to moderate as the year wound to a close and the S&P Case-Shiller home-price index plunged by a record 18 percent in October.
Investors are still holding out to see if today's rally continues tomorrow, potentially delivering the elusive Santa Claus rally, but some traders said don't hold your breath.
"I think people may be saving up to see if we can get into that Obama honeymoon rally," Art Cashin, director of floor operations at UBS, told CNBC.
With one more day to go in the trading year, the Dow is down 35 percent in what is likely to be its worst year since 1931. Only two stocks are set to finish the year positive: Wal-Mart and McDonald's.
On the S&P, the worst performers were, not surprisingly, financials, which plunged 58 percent. The best were consumer staples, which lost just 18 percent. And crude oil is down a whopping 60 percent for the year.
There had been some predictions for a recovery next year but many analysts say now we won't see the economy get back on track until 2010.
"I think we're going to see two '09's," Cashin said. "The first half of the year may be filled with a good deal more hope," given the Obama boost, he said. "The back half of the year may be filled with a hangover."
Many analysts are predicting the reverse, a sluggish first half and rally in the second half.