NEW YORK, DEC. 18 -- The stock market rose sharply today, reviving its year-end rally in activity intensified by the quarterly "witching hour" involving stock-index futures and options.

The Dow Jones average of 30 industrials climbed 50.90 to 1975.30, closing out the week with a gain of 108.26. That surpassed the record weekly point rise of 100.30 set the week before.

Advancing issues outnumbered declines by more than 3 to 1 on the New York Stock Exchange. Big Board volume totaled 276.22 million shares, up sharply from 191.78 million in the previous session.

The day began amid general expectations of heavy trading and unpredictable swings in stock prices, with December options and futures on stock indexes approaching expiration.

In a process adopted earlier this year to smooth out the witching hour, some of the contracts were settled on the basis of today's opening stock prices, and others at the close.

Reports from the NYSE floor before the opening and again before the close showed a preponderance of buy orders for most stocks used by program traders in index arbitrage transactions along with the options and futures.

While the witching hour muddied the overall picture, analysts said investors seemed to respond favorably to a rally in the dollar, a drop in interest rates, and an assertion by Alan Greenspan, chairman of the Federal Reserve Board, that a recent jump in the nation's reported trade deficit was an "aberration" that is likely to be reversed in the next monthly figures.

Elsewhere in the economic news, the Labor Department reported that the consumer price index rose 0.3 percent in November, in line with most advance estimates.

Gainers among the blue chips included General Electric, up 7/8 at 45 7/8; American Telephone & Telegraph, up 1 1/8 at 29 1/8; Eastman Kodak, up 1 5/8 at 50 7/8; Merck, up 3 3/4 at 161, and International Business Machines, up 1 3/4 at 117 1/4.

Texaco gained 2 1/2 to 38 1/2 and Pennzoil 4 1/8 to 79 3/8 amid anticipation of an agreement to settle the companies' long legal battle.

Texas attorney David Boies announced late tonight that the companies have reached an "agreement in principle" to settle their $10.3 billion legal dispute.

Bank stocks were broadly higher, bouncing back from sharp declines of late. Citicorp gained 1 1/4 to 18 3/4; Chase Manhattan 1 1/8 to 21 1/4; Chemical New York 1 5/8 to 23, and J.P. Morgan 1 1/2 to 32 3/4.

On the downside, Central Hudson Gas fell 7/8 to 18 7/8. The company reduced its dividend, citing the disallowance of part of its investment in a nuclear power plant.

As measured by Wilshire Associates' index of more than 5,000 actively traded stocks, the market rose $54.77 billion, or 2.31 percent, in value.

The NYSE's composite index of all its listed common stocks gained 3.13 to 139.15.

Nationwide turnover in NYSE-listed issues, including trades in those stocks on regional exchanges and in the over-the-counter market, totaled 304.52 million shares.

Standard & Poor's index of 400 industrials rose 7.18 to 287.56, and S&P's 500-stock composite index was up 6.18 at 249.16.

The Nasdaq composite index for the over-the-counter market added 7.40 to 326.91. At the American Stock Exchange, the market value index closed at 256.10, up 4.92.