The auto industry was in focus after a meeting between executives at Toyota Motor Corp. and Ford Motor Co. sparked hope about a potential alliance between the two rivals. Shares of both companies moved higher on the speculation.
Further takeover activity lent support to the overall market after McClatchy Co. announced late Tuesday it agreed to sell the Star Tribune newspaper in Minneapolis to a private equity fund. Also, graphics communication company Cenveo Inc. agreed to buy rival Cadmus Communications Corp.
But investors looking to buff up their portfolios by year's end were behind most of the gains after major indexes languished last week.
"What you're seeing is window dressing, people want to finish up the year looking like they own the best names," said Philip S. Dow, managing director of equity strategy at RBC Dain Rauscher. "And for those that missed the market, they're trying to put their cash to work and play catch-up. You've got momentum on your side this year."
The session was again marked by thin volume typical of the week between Christmas and New Year's. The New York Stock Exchange began the session with two minutes of silence as a tribute to President Gerald Ford, while the Nasdaq Stock Market had a similar observance later in the morning.
The Dow rose 102.94, or 0.83 percent, to a closing record of 12,510.57. The index hit a record trading level of 12,519.22 earlier in the session.
Broader stock indicators also advanced. The Standard & Poor's 500 index was up 9.94, or 0.70 percent, at 1,426.84, and the Nasdaq composite index rose 17.71, or 0.73 percent, to 2,431.22.
The two-day advance leaves major indexes heading toward double-digit gains for the year. The Dow is now up 16.7 percent this year, while the Nasdaq has risen 10.2 percent and the S&P 500 is up 14.3 percent.
A Commerce Department report that showed new home sales rose more than expected in November sent bonds lower; many investors are hoping that signs of economic weakness will motivate the Federal Reserve to lower interest rates, so this sign of strength was troublesome for bondholders. The yield on the benchmark 10-year Treasury note rose to 4.65 percent from 4.60 percent late Tuesday.
Dave Albrycht, senior portfolio manager for Phoenix-Goodwin's multi-sector bond portfolio, said there was more at play than just the home sales data. He pinned most of the swing on "light volume and absence of liquidity," when tend to skew price moves.
"Housing sales moved the market a little," he said. "There has been an abundance of liquidity in the market that has been supporting these low yields. That's not the case this week."
The dollar was mixed against other major currencies, while gold prices were higher.
Oil and natural gas continued to fall, continuing a drop of more than $1 on Tuesday on concerns a mild winter weather depressed demand for heating fuel. The price of a barrel of light sweet crude fell 76 cents to $60.34 on the New York Mercantile Exchange.
Shares of the biggest U.S. retail chains were higher despite a report from the International Council of Shopping Centers confirmed sales were not as strong in the pre-Christmas holiday shopping period. There is some hope among analysts that retailers can make up for this as customers pack stores to catch year-end sales.
Wal-Mart Stores Inc., the world's largest retailer, rose 5 cents to $46.16. Federated Department Stores Inc. rose 58 cents to $38.34, while Target Corp. was up 38 cents at $57.47.
However, homebuilders advanced on the home sales report. The data also indicated that inventories fell and the median price of a new home moved higher. Hovnanian Enterprises Inc. rose 46 cents to $33.70, Toll Brothers Inc. added 60 cents to $32.29, and KB Home was up 97 cents at $51.76.
Ford rose 9 cents to $7.58 on speculation the struggling automobile maker might be in talks about a possible alliance with Japanese rival Toyota. Shares of Toyota spiked $2.65 to $134.26.
Investors also were tracking the slide of Apple Computer Inc. after a legal publication reported that federal prosecutors are probing whether former company executives forged documents to maximize executives' stock option profits. Shares rose by a penny to $81.52.
McClatchy, the nation's second-largest newspaper publisher, said it will sell the Star Tribune to Avista Capital Partners for $530 million. The sale follows a decision earlier this year to spend $4.5 billion to buy the Knight Ridder newspaper chain.
Shares of McClatchy fell by a penny to $43.06.
E-Trade Financial Corp. shares rose 7 cents to $22.46 on the discount brokerage's first day of trading on the Nasdaq Stock Market after it switched from the New York Stock Exchange.
Cadmus Communications Corp. rose $3.48, or 16.6 percent, to $24.46 after it agreed to be acquired by Cenveo for about $235.1 million. Both companies will form the third-largest graphic services provider in North America. Cenveo rose $1.85, or 9.3 percent, to $21.70.
Advancing issues outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where consolidated volume came to 1.67 billion shares, compared to 1.32 billion at the same point on Tuesday.
The Russell 2000 index of smaller companies was up 9.56, or 1.21 percent, at 797.73.
Overseas, Japan's Nikkei stock average closed up 0.46 percent. At the close, Britain's FTSE 100 was up 0.89 percent, Germany's DAX index rose 1.63 percent, and France's CAC-40 added 1.58 percent.