NEW YORK (CNNfn) - The Nasdaq composite index snapped a six-week losing streak Friday to end nearly 5 percent higher for the week, extending the prior session's stellar rally, as investors were encouraged that some of the beaten-down technology stocks were now bargains.
"We've held out that, as you move through the third-quarter earnings, the companies that report will show strong growth," said Kevin Caron, associate strategist with Gruntal & Co. "Stock prices have been so compressed that it give investors reason to step in and pick up stocks at depressed prices."
 The Nasdaq jumped 64.49, or nearly 2 percent, to 3,483.09 -- one day after a nearly 8 percent advance and just two days after churning nearly 6 percent lower in intraday trading. From Wednesday's low of 3,026.11, the index is up 13 percent.
"The volatility measures are falling with this snapback and there is a short-term shift in psychology -- there's a lot of bargain-hunting going on out there," said Terence Gabriel, stock market strategist at IDEAglobal.com.
Jim Waggoner, market and technology strategist at Sands Brothers & Co., told CNNfn's In the Money that the Nasdaq rally may be the definitive sign of a change in investor psychology. (428K WAV) (428K AIFF)
The Dow Jones industrial average recovered from earlier losses to also post its first weekly gain in six weeks, led by Microsoft and Hewlett-Packard.
 The Dow gained 83.61 to 10,226.59, rising 0.3 percent for the week. The blue chip index is up 5.5 percent from its low on Wednesday of 9,654.64. The S&P 500 advanced 8.16 to 1,396.92, and is up 1.6 percent for the week.
Market breadth was positive. Volume was moderate but still lighter than it had been in the previous few sessions, due to options expirations keeping some people on the sidelines, analysts said.
"Today is a double (options) expiration so you wouldn't expect much out of today," said Peter Coolidge, senior trader with Brean Murray & Co. "It's been a volatile week, but buyers are still encouraged by yesterday's action in the tech-heavy Nasdaq."
On the New York Stock Exchange, advancers beat decliners 1,582 to 1,233, as more than 1.1 billion shares changed hands. Winners topped losers on the Nasdaq 2,353 to 1,589, as more than 2.1 billion shares were traded.
Treasury securities rose. The dollar rose against both the euro and the yen.
Techs send stocks soaring
As corporate quarterly results continue to flood the market, investors are being discriminating about which results are worthy of their money, and which ones just weren't giving strong enough guidance.
"As fearful as investors were nearly seven weeks ago, they're afraid of missing the bottom, so that's why you see the violent moves to the upside. But we still have to get through October," said Art Hogan, chief market analyst at Jefferies & Co.
Boosting the Nasdaq, Cisco Systems (CSCO: Research, Estimates) lost 94 cents to $57.31, Sun Microsystems (SUNW: Research, Estimates) jumped $1 to $118.69, and Microsoft (MSFT: Research, Estimates), both a Dow and Nasdaq component, rose $3.31 to $65.19.
And the buying spilled into the Dow. Hewlett-Packard (HWP: Research, Estimates) surged $5.06 to $96 and Intel (INTC: Research, Estimates), also a Nasdaq issue, jumped $1.06 to $43.
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The day's earnings further encouraged investors. eBay (EBAY: Research, Estimates) gained 88 cents to $58.06 after the Web auction site announced third-quarter earnings late Thursday that exceeded analysts' estimates by 3 cents a share on a 94 percent increase in revenue. The company also said it is comfortable with analysts' forecast for the rest of 2000.
Goldman Sachs raised its 2000 earnings estimate for eBay to 21 cents a share from 19 cents and its 2001 estimate to 36 cents from 35 cents. Lehman Brothers raised its 2000 earnings estimate for eBay to 22 cents a share from 19 cents and reiterated its "buy" rating.
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Dow component Merck (MRK: Research, Estimates), the No. 2 U.S. drug maker, gained $4.31 to $81.88, after it beat Wall Street third-quarter estimates by 5 cents a share to earn 78 cents a share, driven by a 29 percent increase in sales.
With the focus on earnings reports, not all profit statements were strong enough to be rewarded.
Another Dow component Coca-Cola (KO: Research, Estimates) slid $2.31 to $54.81 after posting a profit that rose sharply in the third quarter, edging past Wall Street forecasts. But the world's largest soft drink maker warned that 2001 results could be hurt if the euro doesn't recover from its current lows against the dollar.
Click here for a comprehensive look at corporate results
Ericsson (ERICY: Research, Estimates), the world's leading maker of equipment for mobile phone networks, fell $2.31 to $11.69 after it lowered its profit forecast for the year to reflect a deepening loss at its cell phone handset unit -- even as gains elsewhere fueled an 11 percent increase in underlying third-quarter profit.
UTC merger talks with Honeywell sour
Investors shifted their focus away from earnings to digest a breakdown in merger talks between two Dow companies.
Dow components United Technologies (UTX: Research, Estimates) and Honeywell (HON: Research, Estimates) ended talks about a possible $40 billion merger that would have created an international manufacturing power producing everything from jet engines to elevators.
United Technologies had offered to acquire Honeywell in an all-stock transaction that would swap 0.74 share of United Technologies for each outstanding Honeywell share. Based on Thursday's closing prices, those terms would value Honeywell at $50.32 per share.
 Lehman Brothers reiterated its "buy" rating on United Technologies, and raised its 2000 earnings estimate to $3.54 a share from $3.50 and its 2001 estimate to $4.07 from $4.05.
Before the stocks were halted, Honeywell shares rose $5.18 to $41.06 while United Technologies dipped $7.19 to $60.81. After reopening, United Technologies ended the day down $3 at $65 while Honeywell did not reopen before the closing bell. 
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