Stocks drifted higher, with the S&P 500 approaching a two-year high, as traders seemed pleased with a narrowing trade deficit and higher consumer confidence, ahead of an expected extension of Bush-era tax cuts by the federal government.

The Dow Jones Industrial Average gained 40.26 points, or 0.35 percent, to 11,410.32. The S&P 500 rose 7.40 points, or 0.60 percent, to 1,240.40, its highest level since September 2008. The NASDAQ leapt 20.87 points, or 0.80 percent, to 2,637.54, its highest mark since December 2007.

The U.S. trade balance narrowed to $38.7 billion (a nine-month low) in October, down 13 percent from $44.6 billion in September, according to the Commerce Department. Economists were expecting a deficit of $44.5 billion.

The University of Michigan/Reuters index of consumer confidence rose to 74.2 from 71.6 last month.

The People's Bank of China again raised its reserve requirement ratio for banks in order to cool down inflation. Moreover, China's trade surplus fell 16 percent in November, as exports increased 35 percent from the previous month.

General Electric (NYSE: GE), the biggest Dow gainer, jumped 3.44 percent after hiking its quarterly dividend.

Netflix, Inc. (Nasdaq: NFLX) climbed 1.87 percent after it was added as a component to the S&P 500 index.

For the week, the DJIA edged up 0.4 percent, while the S&P 500 and NASDAQ jumped well more than 1 percent.

Bonds fell as the yield on the 10-year Treasury rose to 3.30 percent, on expectations that a tax-cut extension will increase the budget deficit.

Oil and gold futures fell.