Santa Visits Wall Street

Updated from 4:06 p.m. EST

Stocks surged Friday as a host of cheery news, from strong economic data to another blowout tech profit report, put traders in a buying mood ahead of the Christmas holiday week.

The Dow Jones Industrial Average rose 205.01 points, or 1.55%, to 13,450.65. Each of the Dow's 30 components finished the session with gains, with AT&T (T Quote) leading the pack with a 3% rise.

Elsewhere, the S&P 500 added 24.34 points, or 1.67%, to 1484.46. The Nasdaq Composite jumped 51.13 points, or 1.94%, to 2691.99.

With the rally, the major averages each finished a week of uneven trading with modest gains. The Dow was higher 0.8% for the week, and the S&P 500 ended up 1.1%.

The Nasdaq was the best performer, adding 2.1% over the five sessions as strong earnings from Research In Motion (RIMM Quote) and Oracle (ORCL Quote) invigorated the tech sector.

Stocks raced out of the gates after the Commerce Department said personal income rose 0.5% last month, as expected, while spending jumped 1.1%, much higher than forecasts. It was the largest surge in spending since May 2004.

The report also said the Federal Reserve's preferred inflation measure, the core personal consumption expenditures deflator, rose 0.2%, in line with expectations. The core inflation measure is up 2.2% over the last year, outside the Fed's so-called comfort zone of 1% to 2%.

Ian Shepherdson, chief economist with High Frequency Economics, said that the spending number came in much higher than forecasts due to an early Thanksgiving holiday last month.

"Given the strong core retail sales numbers and the surge in energy prices, the consensus forecasts for both nominal and real spending were bafflingly low," said Shepherdson. "You should now expect a wave of modest [gross domestic product] forecast upgrades for the fourth quarter."