Dec. 1 (Bloomberg) -- U.S. stocks gained as a drop in oil prices and better-than-expected reports on consumer spending and manufacturing signaled economic expansion will push the market higher by year-end.

``The economy is on a good solid growth path, which of course has positive implications for the stock market,'' said Stuart Wester, who helps manage $10 billion as vice president of equities at USAA Investment Management Co. in San Antonio. ``Business and consumers are contributing to the growth, and I expect to see that continue.''

Semiconductor shares rose after Novellus Systems Inc., the maker of machines used in chip manufacturing, forecast fourth- quarter sales higher then estimates. Health-care stocks advanced as Cigna Corp. and Humana Inc. increased their profit forecasts and retail stocks including Wal-Mart Stores Inc. rebounded.

The Standard & Poor's 500 Index gained 13.86, or 1.2 percent, to 1187.68 as of 1:34 p.m. in New York, surpassing the three-year closing high it reached Nov. 12. The Dow Jones Industrial Average gained 123.03, or 1.2 percent, to 10,551.05. The Nasdaq Composite Index, which gets 41 percent of its value from computer-related shares, added 33.05, or 1.6 percent, to 2129.86, poised for its best close since January.

The S&P 500 had its best monthly gain of the year in November, advancing 3.9 percent. History suggests the rally has further to go. Over the last decade, it averaged a 1.4 percent rise in December and has fallen only twice -- in 2002 and 1996.

More than 10 stocks advanced for every three that declined on the New York Stock Exchange. Some 1 billion shares changed hands on the Big Board, 39 percent more than the same time a week ago.

Oil, Consumer

Crude oil prices fell after an Energy Department report showed that U.S. inventories of heating oil and other fuels rose more than expected last week. Crude for January delivery lost 6.2 percent to $46.10 a barrel in New York. Prices have tumbled 17 percent from a record $55.67 on Oct. 25. The S&P 500 has climbed 8.5 percent in that period.

U.S. personal incomes had their biggest rise in five months in October, gaining 0.6 percent, the Commerce Department reported. Consumer spending increased 0.7 percent in October, following a 0.6 percent gain in September. Economists had forecast spending to advance 0.4 percent, according to a Bloomberg News survey.

`Doing Well'

``The economy is doing well,'' said James Gribbell, who manages $1 billion for Babson Capital Management in Cambridge, Massachusetts. ``Everyone is focused on finishing up the year on a positive note, I know a lot of people have been putting cash to work.''

Novellus Systems advanced $1.31 to $28.25. The San Jose, California-based company yesterday forecast fourth-quarter sales and profit to exceed analysts' estimates, saying orders won't decline as much as previously expected.

A gauge of makers of chips and chip equipment climbed 2.7 percent for the steepest rise among 24 industry groups in the S&P 500. Intel Corp. added 38 cents to $22.76. The world's biggest chipmaker gives an update to investors on fourth-quarter results tomorrow.

International Business Machines Corp. increased $1.31 to $95.55, leading computer shares higher. The world's biggest computer-services company said it won more than $1 billion in new contracts linked to the acquisition of two Danish businesses.

Cigna Gains

Cigna, the No. 4 largest U.S. health insurer, climbed $5.83 to $75.85. The company said 2004 earnings excluding some items will be $950 million to $975 million, higher than a forecast given last month. Cigna said its 2005 earnings will also surpass its previous prediction.

Humana, the biggest manager of health plans for the U.S. military, climbed $1.95 to $26.77 after increasing its full-year earnings forecast. Humana said it will probably earn about $1.69 a share, up from its previous forecast of $1.66 to $1.69.

An index of retailing stocks advanced 1.2 percent as the consumer spending report and lower oil prices eased concerns that holiday sales will be lackluster. The group retreated 2.9 percent earlier in the week.

Wal-Mart, the world's largest retailer, rebounded 58 cents to $52.64, breaking a five-day losing streak. Home Depot Inc., the home-improvement chain, rose 55 cents to $42.30.

ISM Report

A report showing U.S. manufacturing strengthened more than expected in November, also helped lift benchmark indexes.

The Institute for Supply Management's factory index for last month rose to 57.8, the first increase since July, from 56.8 in October. Economists expected a reading of 57 in the factory index, based on the median of 70 forecasts in a Bloomberg survey.

Industrial stocks rose on the manufacturing report. Honeywell International Inc., the world's No. 1 maker of cockpit electronics, added 83 cents to $36.16. United Technologies Corp., the maker of Pratt & Whitney jet engines and Carrier air conditioners, advanced $1.77 to $99.35.

Louisiana-Pacific Corp. climbed $2.63, or 11 percent, to $27.15 for the biggest gain in the S&P 500. The largest North American maker of wood panels for floors and roofs gained as oriented-strand board prices increased on housing demand in California and supply shortages in the southeastern U.S., analysts said.

The Nasdaq-100 Index Tracking Stock, formerly known by its QQQ ticker symbol, rose 69 cents to $39.82 in its first day of trading since moving to the Nasdaq Stock Market. The listing for the most actively traded U.S. security will now trade under the ticker symbol QQQQ. The shares, with a total market value of about $23 billion, had been listed on the American Stock Exchange since they began trading five years ago.

To contact the reporter on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net.

Last Updated: December 1, 2004 13:38 EST