NEW YORK – Stocks rose Friday, with the Dow average and Standard & Poor's 500 index posting their best closes of the year, as investors welcomed a stronger-than-expected GDP report and oil company shares touched historic peaks amid lofty crude prices.
The Dow Jones industrial average (search) rose 92.81 points, or 0.86 percent, to 10,841.60. The Standard & Poor's 500 Index (search) was up 11.17 points, or 0.93 percent, at 1,211.37. The technology-laced Nasdaq Composite Index (search) finished up 13.70 points, or 0.67 percent, at 2,065.40.
Friday's gains topped a strong three-day recovery for U.S. stocks following a broad sell-off on Tuesday. For the week, the Dow rose 0.52 percent, the S&P 500 edged up 0.81 percent, and Nasdaq climbed 0.33 percent.
"GDP being revised up for the fourth quarter shows there is still great vitality out there," said Joseph Battipaglia, chief investment officer for Ryan, Beck & Co.
"The momentum of the last couple of days suggests to investors that despite high energy prices, it is still OK to be buying stocks — and there is leadership in energy and materials," Battipaglia said.
"The economic news showed that the economy has been stronger than what we expected and we are seeing its impact kicking in," said Warren Simpson, managing director at Stephens Capital Management. "Oil companies are also fueling to the uptick."
Wall Street welcomed the latest GDP data, which showed the economy growing at an annualized rate of 3.8 percent in the fourth quarter, up from last month's 3.1 percent estimate from the Commerce Department and better than economists' 3.5 percent forecast.
As stocks rose through the session, investors managed to put aside recent fears of inflation and focus on the growing economy, which should allow the Federal Reserve to continue its policy of regular interest rate hikes without harming companies' ability to borrow money.
"The lingering fear in the market right now is the Federal Reserve, because they are in a process of moving rates higher, but nobody knows really how far," said Joseph Keating, chief investment officer at AmSouth Asset Management. "But if you look at today's data, for example, you see that the economy is in good shape, fundamentals are sound. What's not to like about the stock market? We just have to get past these fears."
Weakness in the dollar and a sharp rise in oil prices above $50 per barrel made for a volatile week on Wall Street, marked by a 174-point tumble in the Dow on Tuesday. Strong economic data helped push the indexes higher toward week's end, however. All three indexes finished the week higher.
The GDP report helped the dollar gain ground against the euro for the first time this week, though the dollar remained mixed against other currencies. The bond market edged higher on the news, with the yield on the 10-year Treasury note slipping to 4.26 percent.
Crude oil futures — which surged earlier this week as the dollar tumbled — fell slightly after the GDP report. A barrel of light crude closed at $51.49, up 10 cents, on the New York Mercantile Exchange (search).
Oil stocks rallied, resuming their place at the forefront of the market. Exxon Mobil Corp. (XOM) was up $2.13 at $63.26, while ChevronTexaco Corp. added 78 cents to $61.94 and ConocoPhilips (COP) climbed $2.14 to $112.32. All three stocks reached all-time intraday highs in Friday's trading.
In corporate news, MCI Inc. (MCIP) Chief Executive Michael Capellas said the company would "do our utmost" to close a $6.75 billion deal with Verizon Communications Inc. in a timely fashion.
MCI also reported a fourth-quarter net loss and said there was no exact estimate for how much time its board would need to review a revised $8 billion offer from Qwest Communications International Inc. (Q) MCI fell 1 percent to $22.60, Qwest slumped 8 percent to $3.86 and Verizon climbed 2 percent to $36.20.
Clear Channel Communications Inc. (CCU) fell 3.4 percent to $32.75 after the largest U.S. radio station chain posted a quarterly net loss after a $4.9 billion charge to write down the value of its radio licenses.
The Wall Street Journal reported Friday that the boards of directors for Federated Department Stores Inc. (FD) and May Department Stores Co. (MAY) would meet in the next few days to finalize Federated's bid for its struggling rival, valued at more than $10 billion. Federated fell 22 cents to $56.79, while May rose $1.50 to $35.35.
In earnings news, The Gap Inc. (GPS) added a penny to $21.29 after the clothing retailer beat Wall Street's fourth-quarter profit expectations by 3 cents per share. The company said it would also double its annual dividend.
Department store chain Kohl's Corp. (KSS) beat analysts' forecasts by a penny per share in the fourth quarter, crediting stronger sales and higher margins. Kohl's gained $1.90 to $47.80.
Friday's trading in stocks was active, with 1.52 billion shares changing hands on the New York Stock Exchange, above last year's daily average of 1.46 billion. About 1.77 billion shares were traded on Nasdaq, just below last year's 1.81 billion daily average.
Advancers outnumbered decliners by more than 3-to-1 on the NYSE and by about 2-to-1 on Nasdaq.
The Russell 2000 index of smaller companies was up 9.97, or 1.6 percent, at 637.53.
Overseas, Japan's Nikkei stock average rose 1.1 percent. In Europe, Britain's FTSE 100 closed up 0.7 percent, France's CAC-40 climbed 1.43 percent for the session, and Germany's DAX index gained 1.03 percent.
Reuters and the Associated Press contributed to this report.