US stocks rose for the fourth week in five, lifting the Standard & Poor's 500 Index and the Dow Jones Industrial Average to their highest since 2001.
Intel Corp, the Dow average's second-worst performer this year, paced gains after Lehman Brothers Holdings Inc said sales next quarter at the No. 1 chipmaker may exceed forecasts.
The S&P 500 climbed 1.3 percent since last Friday to 1,210.13, closing at its highest since August 2001. The benchmark has gained 8.8 percent this year, extending last year's 26 percent surge. Further advances may be limited, according to Ted O'Connor of Cooke & Bieler Inc.
"We've had a strong two-year rally and a good earnings pickup, but that's now behind us," said O'Connor, who helps manage US$6 billion in Philadelphia.
"Earnings aren't going to grow that fast," and investors will "have to work for their money," O'Connor said.
He forecasts the S&P 500 will rise 5 percent to 10 percent next year.
The Dow average added 1.7 percent to 10,827.12, a level not seen since June 2001. The NASDAQ Composite Index gained 1.2 percent to 2160.62, leaving it less than 2 points shy of a three-year high set on Dec. 15.
US exchanges were closed on Friday for Christmas Eve. Average daily volume on the New York Stock Exchange during the holiday-shortened week was 12 percent less than the three-month average.
Intel climbed 3.4 percent to US$23.54 since last Friday, pacing gains in the Dow average. The shares stand to benefit as sales next quarter may top forecasts and profit margins improve in the second half, Lehman analyst Tim Luke wrote in a report. He raised his rating to "overweight" from "equal weight."
The rally in Intel shares led a 2.4 percent advance in an S&P 500 index of semiconductor stocks. Applied Micro Circuits Corp, a maker of chips used in computer-networking equipment, added 5.4 percent to US$3.88.
Micron Technology Inc rose 4.3 percent to US$11.80. The world's No. 2 maker of computer-memory chips said Dec. 22 it had the highest profit in four years in its fiscal first quarter.
Micron was one of the last S&P 500 companies to report quarterly results this year, capping off the best year for corporate profits since 1993, according to Thomson Financial. Earnings growth for companies in the benchmark is expected to slow to 10.5 percent next year from 19.2 percent this year, Thomson said.
Solectron Corp was among the week's worst performers, tumbling 12 percent to US$5.17. The world's No. 2 maker of circuit boards and network gear for other companies said on Dec. 21 that fiscal first-quarter sales missed analysts' estimates and will fall short again this quarter.
AmerisourceBergen Corp dropped 7.8 percent to US$56.84. The No. 3 US drug wholesaler said next year's earnings will miss its forecast because of lower-than-expected drug-price increases and fewer deals from manufacturers.
Another sign that the rally in stocks may fade is a nine-year low in the Chicago Board Options Exchange's SPX Volatility Index, according to Bernie Schaeffer, chief executive of Schaeffer's Investment Research in Cincinnati.
The so-called VIX index, which reflects the prices paid for S&P 500 options, dropped 5.9 percent for the week to 11.23, the lowest since December 1995.
Low volatility "increases vulnerability of the market to shocks," said Schaeffer. He said investors are underestimating the risk of a 20 percent to 25 percent drop in the S&P 500. "It may be the calm before the storm."