Wall Street stocks rose on Friday as the S&P 500 rallied for a fourth straight day and turned positive for the year after a run of better-than-expected economic data.

The S&P 500 has gained nearly 5 percent over the last four days and is slightly higher for the year. Investors cited recent improvement in U.S. economic data and seasonal factors behind the move, but many remained cautious about the 2012 outlook.

The U.S. Congress approved a two-month extension of a payroll tax cut for 160 million workers that otherwise would have expired on December 31. The resolution, if only temporary, removes a market headwind that investors said could have hit growth next year.

New U.S. single-family home sales rose to a seven-month high in November and the supply of houses on the market was the lowest in 5-1/2 years. The data added to signs of a budding recovery in the sector, which continues to be a serious overhang for markets. Banks have been especially hard hit, with financials <.GSPF> the worst performing S&P sector this year.

More than anything, the better tone in housing is very suggestive that the jobs market's improved, said Jim Paulsen, chief investment officer at Wells Capital Management.

He said the latest data added more evidence that consumer spending and housing is responding to a little better jobs market.

The S&P 500 edged above its 200-day moving average, a level that has proved difficult to maintain after plummeting below it in August. However, low holiday-season volume means investors are cautious of the move.

We are in the two-week silly period here, so it's kind of hard to put too much significance on any of it, Paulsen said.

The Dow Jones industrial average <.DJI> gained 92.22 points, or 0.76 percent, to 12,261.87. The Standard & Poor's 500 Index <.SPX> rose 8.99 points, or 0.72 percent, to 1,262.99. The Nasdaq Composite Index <.IXIC> added 16.00 points, or 0.62 percent, to 2,615.45.

Volume was light ahead of the extended Christmas holiday weekend, and could still spark exaggerated market swings. The New York Stock Exchange will observe normal trading hours, but the bond market will close early, at 2:00 p.m. EST (1900 GMT).

Brian Battle, a trader at Performance Trust Capital Partners in Chicago, warned about reading too much into the market's recent run. He said he was cautious heading into the new year, with Europe's debt crisis unresolved, growth still weak, and a U.S. presidential election looming.

We should all be careful not to deem it as the end, he said. We might take it all back in January.

SunPower Corp jumped 3.6 percent to $6.06 after the solar panels maker reached a deal to acquire rival Tenesol, a unit of France's Total SA . At the same time, Total is buying 18.6 million SunPower shares, raising its stake to about 66 percent.

Shares in Rambus Inc jumped 14.1 percent to $8.35. The company signed a patent licensing deal with Broadcom Inc , resolving all previous claims related to its technology.

WPX Energy Inc will replace Compuware Corp in the S&P MidCap 400 index, Standard and Poor's said.

Exterran will replace Skyline Corp in the S&P SmallCap 600 index. The changes are effective at the close of trading on Friday, December 30.

Compuware fell 0.2 percent to $8.31, Exterran slid 3.4 percent to $9.22, and Skyline dropped 6.2 percent to $4.40.

(Reporting By Chuck Mikolajczak; Editing by Jan Paschal and Jeffrey Benkoe)