NEW YORK - The Dow Jones industrials had their third straight record close Friday, ending the best week for U.S. markets since November.

Friday's advance gave the Dow its fourth straight gain, with the index adding 215.02 points since Tuesday. The market's February rally has been driven by growing confidence that interest rates will hold steady as Federal Reserve Chairman Ben Bernanke battles inflation and tries to ease the economy into a soft landing.

The Dow rose 2.56 Friday, or 0.02 percent, to 12,767.57. It marked the Dow's 30th record close since the start of October and the blue chips' third record close of the week.

The Standard & Poor's 500 index fell 1.27 Friday, or 0.09 percent, to 1,455.54, and the Nasdaq composite index dropped 0.79, or 0.03 percent, to 2,496.31.

"What drove the market this week was Bernanke's testimony (to Congress), keeping things on hold," said Mike Morcos, who manages $1.2 billion at Old Second Wealth Management in Aurora, Ill. "The economy is in good shape. Inflation is mild and contained."

The major indexes all finished the week with gains of more than 1 percent. The Dow's weekly advance was its biggest in three months, and the index is up 2.4 percent year-to-date. The Nasdaq is up 3.4 percent on the year, and is 6.51 points off its six-year high, which was clocked Jan. 12.

The S&P 500 has advanced 2.6 percent this year. Markets will be closed Monday for Presidents Day.

Markets also have been helped by a spate of mergers and acquisitions. The rumors about a potential takeover of aluminum producer Alcoa Inc. this week created an enthusiastic buzz on Wall Street that acquisitions this year will smash the $4 trillion record set in 2006.

Seven weeks into 2007, the amount of money for takeovers brokered by investment banks and private equity firms is trending above last year. In the U.S., market researcher Dealogic said volume has soared 86 percent to $228.6 billion from last year, while global volume rose 36 percent to $477.4 billion.

Markets were rattled early Friday before recovering after the Commerce Department said January housing starts plunged 14.3 percent to their lowest point in nearly a decade.

Timothy Rogers, chief economist at Briefing.com, said investors shouldn't make too much of the decline.

"The volatility is expected," he said, particularly with weather turning worse in January after a mild start to the winter.

Rogers said he is "looking for a stronger pace come the spring buying season."

Stocks began their ascent Tuesday after the Alcoa talks surfaced, and extended gains Wednesday after Bernanke told a Senate panel the economy should grow modestly this year and that he expects inflation will continue to ease. The testimony appeared to some investors that a reduction in interest rates might be possible this year - or at least made it seem more likely the bank would keep rates stable rather than raise them to cool the economy.

A cooling housing sector and an attendant uptick in unemployment could ease concerns about inflation and help the Fed justify an eventual reduction in short-term interest rates.

The central bank has left rates unchanged at its past five meetings, interrupting a string of 17 straight advances that began in 2004.

"The economic outlook remains sound basically because with inflation under control, interest rates can come down if needed and put a safety net under the economy," said Stuart Schweitzer, global markets strategist for JPMorgan Private Bank.

"All that worry about inflation that was out there six or nine months ago has been pretty much washed out of the market," said Lincoln Anderson, who helps manage about $140 billion as chief investment officer at LPL Financial Services in Boston.

"Ultimately, when the dust settles we'll have companies' earnings moving higher and the stock market will move up."

Friday's housing report sent stocks of home builders falling. An S&P gauge of home builders fell 0.6 percent on the day, its first decline in four days.

If the housing slowdown "hits the consumer, you can expect that it will take a chunk out of GDP," said Michael Mullaney, who manages $10 billion at Fiduciary Trust Co. in Boston. That "will affect earnings and cause, at some point, weakness in stock prices."

Stocks have been buoyed by positive earnings reports in recent weeks. Companies posted a 9.9 percent gain in fourth-quarter profit through Thursday, with 82 percent of the S&P 500 members having reported results, according to data from Bloomberg.

Earnings this quarter will probably rise 4.1 percent, according to analysts' estimates. Average profits in the S&P 500 have climbed by at least 10 percent since the third quarter of 2002.

Movers

- Goodyear Tire & Rubber Co., down 23 cents, to $25.18. The tire maker reported a steep loss in the fourth quarter because of a costly strike at 16 factories.

+ Campbell Soup Co., up $2.71, to $42.29. The soup maker raised its forecast for the year and reported an increase in fiscal second-quarter profits.

- Agilent Technologies Inc., down $1.06, to $32.77. The company, which makes devices used to test and inspect network components, posted a first-quarter profit that missed expectations.

+ Stamps.com Inc., up $2.68, to $16.98. The online postage and shipping supplier's fourth-quarter results topped Wall Street's expectations.

Back to Top