Major indexes gained for a third straight session, reversing recent losses. Meanwhile, a closely watched inflation gauge posted its biggest increase in 13 months
Stocks ended a rollercoaster week on an up note Friday, finishing higher after a report showed increases in consumer spending and income but also rising inflation. A drop in bond yields, strength in global stock markets, and speculation that major indexes have established a near-term bottom motivated bulls, says Standard & Poor's Equity Research.
The Dow Jones industrial average rose 67.56 points, or 0.6%, to 11,278.61, paced by AT&T (T ) and Alcoa (AA ) en route to a weekly gain of 1.2%. The broader Standard & Poor's 500 index added 7.28 points, or 0.57%, to 1,280.16, up 1% for the week. The tech-heavy Nasdaq composite advanced 12.13 points, or 0.55%, to 2,210.37, rising 0.8% on the week and returning to positive territory for the year.
Trading was light Friday ahead of the Memorial Day weekend, says S&P Equity Research. Markets and government offices will be closed Monday for the holiday.
Investors were digesting fresh economic data. Personal income rose 0.5% in April, while consumption increased 0.2%. Both were less than expected, says Action Economics. However, a key inflation gauge posted its biggest 12-month increase since March 2005. The personal consumption expenditure (PCE) index deflator excluding food and energy was up 2.1% in April from the same month a year earlier.
The PCE deflator was likely outside Federal Reserve Chairman Ben Bernanke's "comfort zone", some analysts say. "These inflation data do not, in our judgment, support the view of a pause at the June FOMC meeting," writes John Ryding, chief U.S. economist at Bear Stearns.
Also on the economic docket, the University of Michigan's final May reading for consumer sentiment held fairly steady at 79.1, after a preliminary reading of 79.0. That's down from April's 87.4, but in line with expectations.
Markets brushed off reports of gun shots heard in the garage of the House of Representatives' Rayburn office building. The building was shut down for most of the day as officers investigated. Police later said the scare was likely sparked by the sound of construction workers.
Investors will have new economic data to assess in the short week next week. Among reports on tap are May employment, factory activity and consumer confidence, as well as April factory orders and construction spending.
In corporate news Friday, General Motors (GM ) was higher after Prudential upgraded the automaker from neutral to overweight. Rival Ford (F ) also gained.
Financial services stocks got a boost from another pair of analyst upgrades. UBS raised its outlook on Goldman Sachs (GS ), while Wachovia upgraded Merrill Lynch (MER ).
Pharmaceutical stalwart Merck (MRK ) was higher after federal regulators approved its vaccine to prevent shingles.
Also rising was Weight Watchers (WTW ), which anounced a $250 million stock buyback.
In earnings news, Agile Software (AGIL ) was lower after the software maker said it swung to a profit for its fiscal first quarter.
Semiconductor equipment maker Credence Systems (CMOS ) hit a 52-week low after the company reported a quarterly loss and issued lower guidance.
Telecom company Ditech (DITC ) was lower after reporting higher earnings for its fiscal fourth quarter.
Women's clothing retailer Chico's FAS (CHS ) was higher after the company posted 11% higher first-quarter profit.
Among other stocks in focus, Internet phone-service provider Vonage (VG ) was higher after its initial public offering Wednesday marked the worst IPO debut since July, 2004.
In the energy markets Friday, July West Texas Intermediate crude oil futures closed up five cents at $71.37 a barrel.
European markets finished higher. In London, the Financial Times-Stock Exchange 100 index rose 113.3 points, or 2%, to 5,791. Germany's DAX index advanced 82.3 points, or 1.44%, to 5,788.36. In Paris, the CAC 40 index gained 95.56 points, or 1.93%, to 5,045.09.
Asian markets finished higher. Japan's Nikkei 225 index rose 277.01 points, or 1.77%, to 15,970.76. In Hong Kong, the Hang Seng index added 198.21 points, or 1.26%, to 15,895.1. Korea's Kospi index climbed 26.67 points, or 2.06%, to 1,322.43.
Prices for 10-year Treasury notes rose to 100-19/32 with a yield of 5.05%, while 30-year advanced to 90-01/32 for a yield of 5.16%.