Stocks trimmed gains in the final minutes of Wednesday's session but still ended at new highs in light trading as investors remained optimistic about the prospects for equities next year.
The Dow Jones Industrial Average rose 9.84 points, or 0.1 percent, to close at 11,585.38, the blue-chip index's highest close since Aug. 28, 2008. The Dow had been up nearly 50 points earlier in the session.
McDonald's, Walt Disney, and Wal-Mart, rose, while Alcoa and JPMorgan slipped.
The S&P 500 rose 1.27 points, or 0.1 percent, to close at 1,259.78, its highest close since September 8, 2008.
The broad market index has marched steadily forward since breaking through a resistance level of 1,255 late last week, and was poised to end its best December since 1991. The index has had the fewest down days in a month since at least October 2006, when it fell five days. So far this month, the S&P has fallen just three days.
The Nasdaq also gained, rising 4.05 points, or 0.15 percent, to close at 2,666.93, slightly below a three-year record reached last week. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell to just above 17.
Among key S&P 500 sectors, energy, materials, and consumer discretionary rose, while financials and utilities fell.
Volume continued to be light so this week, due to holiday vacations in addition to a snow storm in the Northeast. Volume on the consolidated tape of the New York Stock Exchange was 1.9 billion shares, less than half the usual volume. On the NYSE floor, only 492 million shares changed hands. (Read More: Does Light Volume Really Matter?)
The markets have continued to rise all month. As of the close Wednesday, the Dow rose 5.3 percent for December and 11.1 percent for the year-to-date. The S&P 500 rose 6.7 percent for the month, and nearly 13 percent for the year-to-date. The Nasdaq rose 6.8 percent for December, and 17.5 percent for the year-to-date.
While the tax cut package passed by Congress earlier this month should continue to buoy stocks, investors are showing some hesitance about the future momentum of U.S. stocks as they move into alternative assets—such as futures and commodities—that do not move in tandem with the U.S. equity markets, according to Bob Enck, CEO of Equinox Fund Management, an alternative asset manager.
"The flows into non-correlated assets is telling us there is some caution out there still," Enck said.
Oil closed just above $91 a barrel in light trade, close to a recent 26-month high.
Energy stocks led the market higher, with new 52-week highs seen among oil producers and servicers, such as Chevron, ExxonMobil, ConocoPhillips and Marathon Oil. Exploration and production companies including Murphy Oil,Devon Energy and Apache.
Noble Energy, which also hit a 52-week high, confirmed an offshore property in Israel was the country's largest natural gas find.
Treasury prices rose after the government auctioned $29 billion of 7-year notes,which had a yield of 2.83 percent and a healthy bid-to-cover ratio of 2.86. The successful auction came as a relief to the Treasury market, which had sold off after after an auction of five-year Treasury notes Tuesday that attracted the lowest demand since June.
The 10-year Treasury note ended the session up 1 3/32 points, pushing the yield to 3.3 percent.
The dollar declined against a basket of currenciesafter the Treasury auction, as the euro stabilized. Copper prices continued to soar, as did gold, which gold closed at $1,413.
Rare earth producers were in focus as China offered conflicting statements on its quotas. Beijing had announced an 11 percent cut in its rare earth metals quotas for the first half of 2011, but later said it hadn't decided, according to the Ministry of Commerce.
Meanwhile, Molycorp climbed a day after a see-saw session, as traders bid the stock up on reports the rare earth metals producer was close to starting its Mountain Pass mine, and then sold it off after the company said it doesn't expect to remove ore from the mine until late next year at the earliest. (Read more: Rare Earth Stocks to Watch in 2011 and Beyond.)
Freeport McMoran shares advanced after the gold producer announced plans to pay a $1-a-share special dividend and enact a two-for-one stock split.
ArcelorMittal shares gained after the world's largest steel producer said it has no plans to raise its offer for Baffinland Iron Ore Mines , according to a source, after rival Nunavut Iron Ore, a private equity-backed group, sweetened its offer.
In tech news, Microsoft co-founder Paul Allen refiled a suit against rivals Apple , Google and Facebook, among others, lodging specific charges against the companies for illegally using Microsoft technology. An earlier lawsuit had been dismissed because it didn't specify products or devices.
Google and Yahoo , meanwhile, got a boost from Hudson Square Research, which started both search companies with a "buy" rating.
Groupon's board has authorized the local-coupon site to raise up to $950 million in funding, a recent Delaware regulatory filing says. Google reportedly tried to buy the Chicago company for between $5 billion and $6 billionbut was rejected in early December.
In company news, Blackrock was expected to launch an internal trading platform in 2011, which the money manager said will be one of the world's largest and will offer low trading costs.
The Blackstone Group, meanwhile, has its eyes Centro Properties Group, an Australian shopping-center company, the Wall Street Journal reported, citing unnamed sources. According to the Journal, Blackstone is mainly interested in Centro's 600 U.S. properties.
Retailers gained across the board, despite a decline in retail sales in the week leading up to Christmas, according to ShopperTrak, though much of that decline was attributed to Christmas falling on a Saturday.
BJ's Wholesale Club soared after a report in the New York Post that Leonard Green & Partners may launch a hostile bidfor the warehouse retailer if an auction doesn't take place in the the next few weeks. The Post cited an unnamed source close to the situation.
Sears jumped more than 6 percent after the retailer said Tuesday it launched an on-demand video service to compete with companies like Netflix .
In health care news, Savient Pharmaceuticals declined after announcing it had begun a search for a CEO. Paul Hamelin, Savient's president since November 2008, will head the company until a chief executive is found.
No significant economic news was on the calendar Wednesday. Coming up on Thursday, the Labor Department is scheduled to release weekly jobless claims and the National Association of Realtors is expected to report its pending home sales index. The Chicago purchasing managers index is also slated to be announced.
European stocks finished higher, with the exception of the FTSE-100, which ended lower in its first day of trading after the Christmas holiday.
On Tap This Week:
THURSDAY: Jobless claims, Chicago PMI, pending home sales, farm prices, money supply, Massey CEO Blankenship retires.
FRIDAY: No major economic data expected.
More From CNBC.com: