Better holiday sales and rising commodities prices pushed stocks to their sixth straight gain and new highs for 2009.
Major indexes edged higher in light trading Monday after sales figures showed shoppers spent more freely this holiday season, a sign that consumers are feeling better about the economy.
Figures from MasterCard Advisors' SpendingPulse, which track all forms of payment, show retail sales rose 3.6 percent from Nov. 1 through Dec. 24, after dropping during that time last year. Adjusting for an extra shopping day between Thanksgiving and Christmas, the number was closer to a 1 percent gain.
Consumer spending is one of the biggest drivers of economic growth and is important for a sustained recovery.
Meanwhile, commodities prices rose as the dollar fell, giving a boost to energy and materials stocks.
Airline stocks fell, helping to keep the market's gains in check, after two security incidents on Northwest flights over the weekend. The Dow Jones transportation average fell 0.6 percent.
With fewer traders in the market due to the holidays, and without any bad news, analysts say stocks are likely to drift higher during the final days of 2009.
"What's going to stop this is a question on a lot of people's minds," said Lawrence Creatura, portfolio manager at Federated Clover Investment Advisors. "And the answer so far is nothing."
Markets were closed for Christmas and will be closed again Friday for New Year's Day.
The Dow Jones industrial average rose 26.98, or 0.3 percent, to 10,547.08, its highest close since Oct. 1, 2008. The Dow transportation average fell 24.37, or 0.6 percent, to 4,163.49.
The Standard & Poor's 500 index rose 1.30, or 0.1 percent, to 1,127.78, and the Nasdaq composite index advanced 5.39, or 0.2 percent, to 2,291.08.
Bond prices came off their lows after an auction of $44 billion of two-year notes saw sufficient demand. Bond prices have been falling in recent weeks, pushing yields higher as stocks continue to advance amid improving economic data.
In total, the Treasury Department is issuing $118 billion of debt this week. Investors have worried this year that demand for government debt would wane amid the massive amounts of supply. But so far, most auctions have gone smoothly.
The yield on the previously auctioned 10-year Treasury note, which moves opposite its price, rose to 3.85 percent from 3.80 percent Thursday.
Stocks added to moderate gains from last week, when the market rose following upbeat reports on unemployment and durable goods orders. This week, readings on home prices and consumer confidence are among the few economic reports expected.
Stocks have managed to grind higher throughout December, but the gains have been more subdued than in recent months as investors have held back on making big moves going into the end of the year. The S&P 500 index is up 66.7 percent since hitting a 12-year low in March.
Commodities prices rose as the dollar fell. Commodities are priced in U.S. dollars, so when the greenback is weak they become more attractive to foreign buyers.
The ICE Futures U.S. dollar index, which measures the dollar against other major currencies, slipped 0.1 percent.
Crude oil gained 72 cents to settle at $78.77 a barrel on the New York Mercantile Exchange. Gold also rose.
Shares of Delta Air Lines Inc., which owns Northwest, fell 48 cents, or 4.1 percent, to $11.29. A failed attack on a Northwest flight on Christmas Day and another incident on the same route to Detroit from Amsterdam on Sunday raised security concerns.
Advancing stocks narrowly outpaced those that fell on the New York Stock Exchange where consolidated volume came to a light 2.8 billion shares.
In other trading, the Russell 2000 index of smaller companies fell 0.32, or 0.1 percent, to 633.75.
Overseas, Japan's Nikkei stock average rose 1.3 percent to its highest close since late August, boosted by an increase in factory production. Germany's DAX index rose 0.8 percent, while France's CAC-40 rose 0.9 percent. Markets in Britain were closed for a holiday.