Stocks rose modestly Friday as the price of oil dropped substantially after Saudi Arabia's call for higher oil production, providing Wall Street with badly needed break.

The Dow Jones industrial average (search) rose 29.10 points, or 0.29 percent, to 9,966.74, while the broader S&P 500 Index (search) gained 4.37 points, or 0.40 percent, to 1,093.56, based on the latest available figures. The technology-laced Nasdaq Composite Index (search) ended up 15.50 points, or 0.82 percent, at 1,912.09.

Alcoa Inc (AA) helped support the blue-chip Dow, after the aluminum producer announced job cuts in Mexico. Shares of U.S. airlines also rallied, as the drop in oil prices reassured investors jittery about higher jet fuel costs. The Standard & Poor's Airlines index rose 3.2 percent.

But energy shares fell, tracking the decline in crude prices, with the S&P Energy Index easing 0.3 percent.

"The big factor today is that oil fell below $40, which is a huge plus for the market. I think all the bad news over the past few weeks is finally being absorbed into the market," said Victor Pugliese, managing director at First Albany Corp.

In New York, crude oil futures ended below $40 for the first time in 10 trading days after Saudi Arabia, the world's largest oil producer, proposed that the Organization of Petroleum Exporting Countries (search) increase production by more than 2 million barrels a day.

But analysts cautioned that this is just a proposal, and might not be approved when OPEC ministers next meet in June. That tentativeness was reflected by yet another day of very light volume on the major markets.

"I view it as temporary," Ryan Smith, managing director of equity trading at Banc One Investment Advisors in Columbus, Ohio, said of the oil-inspired rally. "We'll have to wait and see if they follow through."

NYMEX crude oil for July delivery fell 87 cents to settle Friday at $39.93 a barrel, the lowest closing price since May 10. The price is down from $41.85, the highest since the New York Mercantile Exchange launched the oil futures contract 21 years ago.

Trading activity was slow, and traders cautioned against reading too much into the market's gains. Friday's volume on the Nasdaq was one of the lightest trading days of the year, a Nasdaq spokesman said.

"There's no volume. No one wants to make a bet before the weekend, and those who did, want to unwind the bets they made, but they're having difficulty due to a lack of liquidity," said Michael O'Hare, head of block trading at Lehman Brothers.

Alcoa (AA) shares gained 18 cents, or 0.6 percent, to $29.48, after rising to a session high of $30.12. The world's No. 1 aluminum producer said it would cut almost 10 percent of the work force at its auto affiliate in Mexico, citing lower production.

Nordstrom Inc. (JWN) surged, a day after the upscale department store chain said its quarterly profit soared 153 percent, driven by strong sales and better use of technology to help track inventory and trends. Shares of Nordstrom shot up $2.67, or 7.2 percent, to $39.90 and were among the biggest percentage gainers on the New York Stock Exchange.

Gap Inc. (GPS)  was up 7 cents at $22.58 following news that the clothing retailer boosted its first-quarter profits by 54 percent, matching analysts' expectations.

Among decliners, Marvel Enterprises Inc. (MVL) slumped, a day after the publisher of "Spider-Man" and other comic books said two executives sold a portion of their stake in the company. Shares of Marvel fell 77 cents, or 3.8 percent, to $19.53 and were among the NYSE's top percentage losers.

But Martha Stewart Living Omnimedia Inc. (MSO) shares soared, after a U.S. Secret Service laboratory director was charged with perjury during his testimony at the trial of Martha Stewart and her broker, Peter Bacanovic, federal prosecutors said.

A U.S. Attorney said the alleged false testimony should have no impact on the Martha Stewart and Bacanovic convictions. Still, Martha Stewart shares jumped 8.8 percent, or 75 cents, to $9.30, after rising almost 22 percent earlier to a session high of $10.40.

SBC Communications Inc. (SBC) grabbed headlines, as the union representing 100,000 workers in 13 states launched a four-day strike after talks for a new contract ground to a halt over health care and job security. Shares of SBC, the No. 2 U.S. local phone company, edged up 2 cents, or 0.08 percent, to $24.33.

Volume on the NYSE was 1.26 billion shares, below the 1.4 billion daily average for last year. About 1.37 billion shares were traded on Nasdaq, well below last year's 1.69 billion daily average.

The Russell 2000 index of smaller companies was up 5.06, or 0.9 percent, at 545.81.

Overseas, Japan's Nikkei stock average surged 1.9 percent higher. In Europe, Britain's FTSE 100 closed down almost 0.1 percent, Germany's DAX index fell 0.19 percent, and France's CAC-40 lost 0.1 percent.

Reuters and the Associated Press contributed to this report.