Stocks continued an early December rally Thursday following a handful of positive economic reports that revived hopes of a stronger U.S. economy and news the European Central Bank was buying euro zone debt.
The Dow Jones Industrial Average rose more than 100 points, after surging more than 2 percent in the previous session, erasing November's losses.
Home Depot, Alcoa and Bank of America led blue-chips higher, while Cisco and Kraft declined.
The S&P 500 and the Nasdaq both advanced. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell below 20.
Among key S&P sectors, financials, industrials and materials gained, while consumer staples fell.
After briefly moving higher, the dollar slipped against a basket of foreign currencies as the euro gained. Oil rose sharply to close at $88 a barrel.
While the market is back to highs for the year, on a relative basis, stocks still beat bonds and cash, said Mike Mussio, portfolio manager at FBB Capital Partners. Mussio said he continues to recommend his clients—both individuals and smaller institutional investors—add to their stock holdings.
Given the evident earnings power at firms, the S&P 500—which broke through the upper end of a resistance level at 1,200—should move higher, Mussio said.
"Now 1,250 to 1,300 on the upper end doesn’t look all that unreasonable," he said, adding that the return of the consumer will be the main catalyst for the market through year-end until companies can get more clarity about the direction of tax policy from the new Congress.
Some traders were crediting Thursday's rally to a positive economic report out of Goldman Sachs. Goldman said the S&P 500 will reach 1,450 by the end of next year, a 23 percent rise in prices. Gross Domestic Product growth will reach a 4 percent pace by the middle of 2012, Goldman said. (Read More: 'Fast Money' Traders—Goldman Sachs Driving Market Gains? ).
UBS, meanwhile, in its market outlook titled "Good with a Chance of Great," said the S&P 500 should reach 1,325 by the end of next year, representing a price gain of 12.2 percdent.
Banks rallied after Goldman Sachs said "stronger economic growth, higher equity prices and a more supportive interest rate environment are positive for many subsectors" of financials. Goldman expects overall earnings-per-share growth for the entire sector to near 24 percent next year, double the projected rate of growth for the S&P 500. Specifically, Goldman raised Stifel Financial to "buy" from "neutral" and raised its price target to $65 from $60, citing improved outlook for capital markets activity. Goldman added Principal Financial Group to its "conviction buy" list, and raised its price target to $32 from $31, citing improvement in the 401(k) market and the potential for the financial firm to buy back stock.
Also, many big banks were reportedly speaking with regulators to settle investigations into mortgage-backed securities transactions that were at the center of the financial crisis, according to the Wall Street Journal.
Morgan Stanley, JPMorgan and Goldman Sachs gained.
Meanwhile, Lawrence Yun, the National Association of Realtors chief economist, said, "The housing market clearly is in a recovery phase..." and called for a "return to more normal loan underwriting standards."
Homebuilders rose after Toll Brothers swung to a profitand the sector got a plug from Goldman Sachs. Rivals Lennar , Hovnanian and PulteGroup all jumped.
Signs the consumer is back was clearly evident Thursday asretailers posted better-than-expected sales for November. Shares of retailers were not universally higher, however, because many have posted strong gains in recent weeks on expectations of a bright holiday season.
Teen retailers Zumiez, Buckle and Gap had higher sales than expected as did Abercrombie & Fitch and Limited Brands, which both reached 52-week highs. Department stores also did well, including Nordstrom, Macy's and JC Penney, which also reached a 52-week high. However, stocks in the sector were trading mixed as many had already reached recent highs.
Meanwhile, brokerage Brean Murray raised its rating on Abercrombie & Fitch to "buy" from "hold."
Some apparel retailers disappointed, including Aeropostale and Hot Topic.
In earnings news, Collective Brands soared 15 percent after the owner of Payless ShoeSource reported a surprising 29 percent jump in earnings, helped by overseas sales.
Meanwhile supermarkets took a hit after Kroger cut its profit and sales forecasts for 2010, despite improved sales in its latest fiscal quarter. Rivals Safeway and Weis Markets also slipped.
Elsewhere, Merck said it plans to buy privately held insulin developer SmartCellsfor about $500 million.
Johnson & Johnson was trading flat after news the drugmaker's Mylanta heartburn products were being recalled, the latest in a string of recalls for the company. The products, created through a venture with Merck, didn't note the products contained small amounts of alcohol.
Meanwhile, Pepsi was slightly lower after itagreed to buy 66 percent of Russian juice and dairy producer Wimm-Bill-Dann for $3.8 billion, pending government approvals. WBD soared more than 25 percent.
Las Vegas Sands slumped almost 5 percent after Macau's government turned down an application by the casino giant's China unit to build on two land parcels located on a portion of the Chinese gambling enclave known as Cotai.
On the economic front, pending home sales gained 10.4 percentin October to 89.3 from 80.9 a month earlier, indicating problems with processing foreclosures didn't hurt activity, according to data from the National Association of Realtors.
Butweeklyjobless claims rose 26,000, more than expected, to 436,000 for the week ended Nov. 27 from a revised 410,000 the week before, the Labor Department reported. The 4-week moving average moved down 5,750 to 431,000.
The government's monthly employment report scheduled for Friday was expected to show another month of job gains in both the private and public sectors. Nonfarm payrolls were seen rising 140,000 in November while private payrolls are seen up 153,000, according to a Reuters poll.
Investors were also disappointed that ECB president Jean-Claude Trichet declined to say the central bank would boost government bond purchases. But European stocks finished the session at two-week highs after traders said the ECB was buying bonds of Portugal and Ireland at a modestly higher rate than usual.
Trichet spoke after the central bank unveiled its decision to leave rates unchanged. Markets are looking for clues on the bank's strategy regarding buying sovereign bonds from the euro zone. The ECB kept rates at a record low but could signal monetary easing ahead.
Trichet stated he "never comments on market activity" in real time.
Also in Europe, Spain's Prime Minister Jose Luis Rodriguez Zapatero sought to reassure investors of the country's economic stability Wednesday. Zapatero said in a CNBC interview that the country's banking system was healthy.
A bond sale in Spain was well-subscribed, though the yield was far higher than a similar auction two months ago.
On Tap This Week:
FRIDAY: Employment situation, factory orders, ISM non-manufacturing index
More From CNBC.com: