Investors welcomed the latest reading of the Conference Board consumer confidence index, which rose to 102.3 in December from 92.6 in November. Wall Street had expected a reading of 94. In a trading week that traditionally carries little news, the better-than-expected reading had a stronger-than-usual influence on trading.

While the dollar reached another new low against the euro, falling crude oil futures helped boost investor sentiment and reverse yesterday's losses. Oil prices stabilized after falling 7 percent yesterday. A barrel of light crude settled at $41.77, up 45 cents, on the New York Mercantile Exchange.

"The consumer confidence figure was very telling, confirming what we've seen in consumer spending and job growth," said Kevin Caron, market strategist for Ryan, Beck & Co. "And we're seeing energy prices cooperate nicely as well."

According to preliminary calculations, the Dow Jones industrial average rose 78.41, or 0.73 percent, to 10,854.54, surpassing the previous 3›-year high set on Thursday. It was the best close for the Dow since June 13, 2001.

Broader stock indicators were moderately higher. The Standard & Poor's 500 index was up 8.62, or 0.72 percent, at 1,213.54, the highest close for the index since Aug. 3, 2001. The Nasdaq composite index gained 22.97, or 1.07 percent, to 2,177.19, its best showing since June 8, 2001.

Stocks recovered from yesterday's dip, when investors worried about the economic impact of the Asian earthquake disaster. Analysts said that while events may cause more pauses in the market's recent rally, the overall upward trend in stocks would likely continue through January.

"The financial impact on the global economy and the U.S. economy is likely to be minimal," said James Wong, senior equity strategist at Payden & Rygel Investment Management, of the quake and resulting tsunamis. "And as for today, the consumer confidence numbers clearly had an impact. It shows the consumer is still very much in the ballgame when it comes to driving the economy."

Blockbuster Inc. lost 6 cents to $9.33 after the company said it will make an $11.50-per-share tender offer for rival video rental chain Hollywood Entertainment Corp. if the latter refuses to negotiate a takeover. Hollywood added 7 cents to $13.16 on the news, the latest in a string of merger and acquisition activity that many on Wall Street see as a sign of health in the economy.