By Megan Davies NEW YORK, Dec 22 (Reuters) - U.S. stocks rode their Santa rally higher on Wednesday, as oil prices tumbled more than a dollar, third-quarter economic growth rose more than previously thought and mortgage finance company Fannie Mae rallied. The S&P 500 Index notched up a new high for the year, closing at its highest since August 2001, while the Dow ended at a 3-1/2 year high for a second day in a row. Fannie Mae helped the S&P 500 Index, rising 2 percent one day after two top executives stepped down. The announcement came after months of scrutiny of Fannie Mae's accounting. Battered-down drug stock Pfizer Inc continued to rebound from a sharp fall on Friday and was the biggest percentage gainer on the blue-chip Dow. The Dow Jones industrial average rose 56.46 points, or 0.52 percent, to 10,815.89. The broad Standard & Poor's 500 Index was up 4.12 points, or 0.34 percent, at 1,209.57. The Nasdaq Composite Index added 6.12 points, or 0.28 percent, at 2,157.03. A tumble in crude prices also boosted the market. High oil prices drag on equities because of their impact on corporate profits and consumer spending, and a drop in crude is generally beneficial to stocks. Stocks were also aided by data from the Commerce Department showing that U.S. economic growth was stronger than previously thought in the third quarter. "I think the market is reasonably satisfied that, with the very small upward revision to third-quarter GDP and with energy weakening again, there's no particular reason why the economy should stop growing in 2005," said Christine Callies, managing director and chief market strategist, Bessemer Trust. Traders also pointed to the so-called "Santa rally" as a reason for stocks gaining. This is a seasonal phenomena that typically sees stocks rallying sometime during the last five days of the year and the first two in January. Callies said it would take a "pretty significant negative news development to put the brakes on this recovery". Trading volume was active, but market watchers said it was slowing as the day progressed. There were 1.39 billion shares changing hands on the New York Stock Exchange, just below the 1.4 billion daily average for last year. About 1.8 billion shares were traded on Nasdaq, above the 1.69 billion daily average last year. Advancers outnumbered decliners by 10 to 7 on the NYSE, 9 to 7 on Nasdaq. "I think the market's on autopilot right now," said Callies "Trading desks are going to be increasingly sparsely populated going into the end of the year." Pfizer helped support the Dow and S&P, rising 3.9 percent, or 98 cents, to $25.95. The drug company was the New York Stock Exchange's most actively traded issue. Pfizer shares adding to gains on Tuesday, which came after a study of Alzheimer's patients eased investors' fears that U.S. regulators will force Pfizer to withdraw its arthritis drug Celebrex. On Friday, Pfizer's stock slid 11 percent after a cancer-prevention study showed that large doses of the drug increased the risk of heart attack. Starbucks Corp. helped the Nasdaq, rising 3.7 percent, or $2.18, to $61.14 after broker Smith Barney raised its 2005 earnings-per-share estimates for the stock. Microsoft Corp. slipped 10 cents to $26.97. The company lost a European Union court appeal on Wednesday to delay sanctions that will force it to change business practices and immediately market a stripped-down version of Windows. The "Microsoft news was obviously on people's minds" when trading opened, said Frederic H. Dickson, Chief Market Strategist at D.A. Davidson & Co. Fannie Mae closed up $1.57, or 2.2 percent, at $71.92. NYMEX January crude oil futures fell $1.46 at $44.30 a barrel after the U.S. government reported that domestic crude stocks unexpectedly rose last week.
