Dow tops 12,500 - a record

NEW YORK (CNNMoney.com) -- Stocks rallied Wednesday, with the Dow Jones industrial average closing above 12,500 for the first time, on falling oil prices, a surprisingly bullish report on home sales and a fresh burst of end-of-year buying.

The Dow Jones industrial average (up 102.94 to 12,510.57, Charts) jumped more than 100 points to end above 12,500 - its highest close ever.

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The Nasdaq (up 17.71 to 2,431.22, Charts) composite and the broader S&P 500 (up 9.94 to 1,426.84, Charts) index both rose about 0.7 percent. The Russell 2000 (up 9.56 to 797.73, Charts) small-cap index jumped about 1.2 percent.

Treasury bond prices slumped, boosting yields, while the dollar fell. Oil dipped and gold surged.

"We're seeing some end of the year good cheer," said John Forelli, portfolio manager at Independence Investments.

He said that the Dow hitting a new record was important for the psychology of the market, adding to hopes that the more than four-year old bull market can continue next year.

Investors responded to the upbeat housing and oil market news in what is typically a positive time of year for stocks.

The combination of the last five trading days of the year and the first two of the new year has been good for an average gain of 1.6 percent on the S&P 500 since 1969, according to the Stock Trader's Almanac. Going back to 1950, that period has been good for a gain of 1.5 percent.

Those seasonal factors kicked in Tuesday and Wednesday, giving stocks a lift.

"We've had a very strong market rally since mid-July and it's certainly not surprising to see the market continue the advance here," said Timothy Ghriskey, chief investment officer at Solaris Asset Management.

He said that stocks should be able to continue rising through at least early January, although sometimes the last trading day of the year can be negative.

Since bottoming in mid-July, stocks have been on a tear. Year-to-date, the Dow is up nearly 16 percent as of Tuesday's close, the Nasdaq is up 9.4 percent and the S&P 500 is up 13.5 percent. The Russell 2000 is up 17.1 percent.

Investors also welcomed a report showing a surprisingly strong jump in new home sales and prices in November. (Full story).

The New York Stock Exchange began trading after observing a moment of silence at the start of trade in honor of former president Gerald Ford, who passed away Tuesday night. (Full story).

Trading volume was moderate and is expected to remain that way for the rest of the holiday-shortened week. All financial markets were closed Monday for Christmas and will be closed next Monday for New Year's Day.

Thursday brings a fresh batch of economic news, with a report on weekly jobless claims due before the start of trading. Shortly after the opening bell, reports are due on December consumer confidence, November existing home sales and the weekly oil inventory report.

Apple (up $0.01 to $81.52, Charts) stock was active on news that federal prosecutors are looking into whether company executives falsified stock options documents. After slumping in the morning, the stock ended the session little changed. (Full story).

A number of other big tech stocks rose, including Dow 30 components IBM (up $1.54 to $97.20, Charts), Intel (up $0.25 to $20.40, Charts) and Hewlett-Packard (up $0.67 to $41.60, Charts).

The Dow was broadly positive, with 29 out of 30 components rising. Other advancers included financial components Citigroup (up $1.29 to $56.41, Charts) and JP Morgan (up $0.64 to $48.95, Charts), aluminum producer Alcoa (up $0.65 to $30.02, Charts) and automaker General Motors (up $0.82 to $30.59, Charts).

The upbeat new home sales report was good news for homebuilding stocks, with Toll Brothers (up $0.60 to $32.29, Charts) and KB Home (up $0.97 to $51.76, Charts) among the beneficiaries.

The Dow Jones Home Construction index jumped 2.2 percent.

COMEX gold rose $3.40 to $630.30 an ounce. Gold stocks rose in tune with the commodity, lifting the Amex Gold Bugs (up $7.31 to $337.20, Charts) index by nearly 2 percent.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by more than three to one on volume of 980 million shares. On the Nasdaq, advancers beat decliners by seven to three on volume of 1.23 billion shares.

U.S. light crude oil for February delivery fell 52 cents to settle at $60.38 a barrel on the New York Mercantile Exchange.

Treasury prices fell, pushing the yield on the benchmark 10-year note up to 4.65 percent from 4.60 percent late Tuesday. Bond prices and yields move in opposite directions.

In currency trading, the dollar weakened versus the yen and euro.

Strength in international markets added to the bullish tone, with Asian markets hitting record highs and European markets closing higher too.

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