"More than anything, the better tone in housing is very suggestive that the jobs market's improved,'' said Jim Paulsen, chief investment officer at Wells Capital Management.
He said the latest data added more "evidence that consumer spending and housing is responding to a little better jobs market.''
The S&P 500 edged above its 200-day moving average, a level that has proved difficult to maintain after plummeting below it in August.
However, low holiday-season volume means investors are cautious of the move.
"We are in the two-week silly period here, so it's kind of hard to put too much significance on any of it,'' Paulsen said.
Brian Battle, a trader at Performance Trust Capital Partners in Chicago, warned about reading too much into the market's recent run. He said he was cautious heading into the new year, with Europe's debt crisis unresolved, growth still weak, and a U.S. presidential election looming.
"We should all be careful not to deem it as the end,'' he said. "We might take it all back in January.''
Especially, in light of the continued mixed signals economic reports are sending.
Earlier figures showed consumer spending and personal income rose by a modest 0.1 percent in November, which was below market expectations, while the headline 3.8 percent increase in durable goods orders last month masked a decline in a crucial investment measure, benefiting from big orders for Boeing aircraft.
"The data itself has been modestly stronger in the fourth quarter but nothing that changes the baseline slow growth story,'' said Andrew Slimmon, managing director, Global Investment Solutions of Morgan Stanley Smith Barney in Chicago.
Attention may also return to Europe, as there were reminders Friday of the underlying problems afflicting the 17-nation eurozone.
Figures showed that eurozone banks stashed euro347 billion ($453 billion) overnight with the European Central Bank on Thursday, in another sign that Europe's debt crisis is still putting pressure on the banking system despite massive central bank support. The figure announced Friday is the highest for 2011, topping euro346.4 billion earlier this month.
The large deposits come despite Wednesday's massive central bank credit operation, in which the ECB let banks borrow as much as they wanted for up to 3 years. As a result 523 banks took euro489 billion, the largest ECB loan operation in the 13-year history of the euro.
But European shares tracked Wall Street's gains higher.
In U.S. markets, SunPower shares jumped after the solar panels maker said it would buy rival Tenesol, a unit of France's Total. At the same time, Total is buying 18.6 million SunPower shares, raising its stake to about 66 percent.
Rambus shares traded higher after the company signed a cross licensing agreement with Broadcom , ending patent litigation between the two.
Eastman Kodak shares received a boost from news of executive changes and the sale of a unit that makes gelatin used in photographic and printing processes.
Mead Johnson Nutrition shares continued to slide on concerns that its Enfamil formula might be linked to a death of an infant in Missouri.
Wal-Mart Stores pulled the formula from its shelves until an investigation can be completed. Mead said it is cooperating with authorities in the probe, but it is very confident in the safety of its products and it has not recalled the products.
-AP and Reuters contributed to this report.
