A weaker dollar also helped buoy the market, pushing energy and materials stocks higher. Trading was extremely light ahead of the Christmas holiday on Friday.
The encouraging signs on the labor market and consumer demand helped assuage investors, who were disappointed the day before by an unexpected plunge in new home sales last month.
New claims for unemployment benefits fell 28,000 to 452,000 last week, the Labor Department reported, the latest sign of improvement in the job market. It was the best figure since September 2008, just before the credit crisis peaked, and better than the 470,000 new claims economists had predicted.
Separately, the Commerce Department reported that orders to U.S. factories for durable goods excluding the volatile transportation sector jumped 2 percent last month, double what analysts were expecting.
Stocks have managed to push higher this month, but at a more subdued pace. As the year winds to a close, investors have slowed their stock buying following a huge rally that brought the Standard & Poor's 500 index up 66.5 percent since March.
This week's trading pattern highlighted the cautious tone that has pervaded the market recently. On Monday, stocks shot higher as another wave of corporate dealmaking boosted investors' optimism. Two days later, stocks barely budged after the disappointing report on housing.
"The news on balance is pretty good," said Uri Landesman, head of global growth, ING Investment Management. "The market continues to inch higher."
According to preliminary calculations, the Dow Jones industrial average rose 53.66, or 0.5 percent, to 10,520.10. The Standard & Poor's 500 index rose 5.89, or 0.5 percent, to 1,126.48, while the Nasdaq composite index rose 16.05, or 0.7 percent, to 2,285.69.
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