Stocks Inch Up in Thin Trading

Stocks went into the holiday weekend quietly, with shares edging higher amid a lack of economic news; dividend-paying stocks got a boost from the congressional passage of a $350 billion tax-cut package.

The Dow Jones industrial averagefinished up 7.36 points, or 0.09 percent, at 8,601.38. The broader Standard & Poor's 500 Index edged up 1.35 points, or 0.14 percent, at 933.22. The technology-laced Nasdaq Composite Index added 2.54 points, or 0.17 percent, at 1,510.09.

For the week, the S&P 500 fell 1.17 percent and the Nasdaq gave up 1.85 percent, snapping a five-week string of gains. The Dow ended the week down 0.90 percent.

The legislation lowers the top tax rate on dividends and accelerates scheduled income tax cuts. It also includes tax breaks for businesses to spur investment in new equipment.

"Word from Congress that they reached a compromise on the tax bill is a positive," said Phil Orlando, senior portfolio manager at Federated Investors, which oversees $200 billion.

"The two key elements will stimulate consumer spending and capital spending, and that's helping stocks today. The dividend issue, which is what people are focusing on, is the third most important factor."

Trading was moderate, with many market participants leaving early for the three-day holiday weekend. U.S. financial markets will be closed on Monday for Memorial Day.

"We're in another consolidation phase right now. There aren't a lot of players, so it's probably not a good barometer, a day like today," said Jack Francis, senior Nasdaq trader at UBS Warburg.

Advancers outnumbered decliners by 18 to 13 on the Nasdaq and by 2 to 1 on the New York Stock Exchange. Roughly 1.20 billion shares changed hands on the Big Board, and about 1.43 billion shares traded on the Nasdaq.

Shares in sectors with high-paying dividends, like tobacco and utilities, rallied on the tax cut news, "but it's spilling over into everything," said Michael O'Hare, head of block trading at Lehman Brothers. "There's a more positive tone to the market."

Growing confidence that the economy will pick up has pushed the S&P 500 up more than 16 percent since mid-March.

Utilities were the day's top performers. Shares of Entergy Corp. and Duke Energy Corp. (DUK) both jumped more than 4 percent, pushing the S&P Utilities index up 3.88 percent. Philip Morris parent and Dow member Altria Group Inc. (MO), which also pays a high dividend, rose 3.07 percent to $42.31.

Boeing Co. (BA) shares rallied on news that the Bush administration approved a multibillion dollar deal to lease modified Boeing transport aircraft as Air Force refueling tankers. Shares of Boeing ended up 3.06 percent, or 89 cents, to $29.99.

Microsoft Corp. (MSFT) shares rose even though Chief Executive Officer Steve Ballmer said he was selling some of his Microsoft stock to diversify his financial assets. Microsoft edged up 6 cents at $24.22.

Among decliners, Gap Inc. (GPS) shares fell a day after the biggest U.S. specialty apparel retailer reported its third straight quarter of earnings growth. But analysts said Gap faces much tougher sales and earnings comparisons in the future. Gap fell 4.07 percent, or 70 cents, to $16.50.

Wall Street's gains were limited by investors cashing in some profits from weeks of rallies as most companies reported surprisingly strong first-quarter profits. The major indexes were poised to break a three-week winning stretch.

"Investors are looking at markets that are basically, not fully, but very reasonably valued. We really need growing conviction of the second half (economic) recovery to withstand a long advance here," said Jack Caffrey, equities strategist at J.P. Morgan Private Bank.

The Russell 2000 index, the barometer of smaller company stocks, rose 3.31, or 0.8 percent, to 418.40.

Overseas, Japan's Nikkei stock average finished Friday up 1.7 percent. In Europe, France's CAC-40 declined 0.2 percent, Britain's FTSE 100 lost 0.3 percent and Germany's DAX index fell 1.5 percent.

Reuters and the Associated Press contributed to this report.