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NEW YORK (CNN/Money) -
Stocks jumped Friday, as falling oil prices and the effects of the quarterly options expiration gave a boost to equities at the end of a tough week.
The Dow Jones industrial average (up 83.19 to 10,641.94, Charts) and the Standard & Poor's 500 (up 10.18 to 1,237.91, Charts) index both jumped about 0.8 percent.
The Nasdaq composite (up 14.20 to 2,160.35, Charts) added nearly 0.7 percent.
A nearly 3 percent drop in oil prices helped lift the market. Sentiment also benefited from news that the federal government will roll out an extensive recovery and rebuilding plan for the Gulf Coast in the wake of Hurricane Katrina. (For more on how the recovery plan will affect the economy, click here).
But with the specter of next week's Federal Reserve meeting looming, most gains came from options trading, said Art Hogan, chief market analyst at Jefferies & Co. "For the last two weeks, the market has been focused on the Fed," Hogan said. "That's still the case today, and it's going to be the case Monday too."
"Stocks aren't up today because people want to make big bets ahead of the Fed, it's largely options-driven," he said, referring to Friday's expiration of stock index futures and options and individual stock futures and options, which occurs once a quarter.
The so-called quadruple witching expirations can lead to increased volatility in the underlying stocks as well as higher volume.
Stocks rose the first two weeks of September, but have struggled this week amid continued worries about Katrina, oil and the Federal Reserve. This kind of choppy trade is fairly typical for late September, a notoriously difficult time for the equity market.
Next week, the focus is largely on the Fed, said Peter Cardillo, chief market analyst at S.W. Bach & Co.
The central bank meets Tuesday for its next policy-setting meeting and is still expected to continue its 15-month interest-rate hiking campaign.
However, for the fist time in a long while, there is some question as to whether they will in fact opt to pause, due to the impact of Hurricane Katrina. At the very least, the Fed is expected to acknowledge the impact of the Hurricane in its statement, and perhaps lay the groundwork for a pause at the November meeting.
"If the Fed doesn't at least hint that a pause could be on the way, I think that would surprise the market," Cardillo said.
What moved?
Gains were pretty broad-based, with around 23 out of 30 Dow issues rising, led by American Express (up $1.90 to $59.46, Research), J.P. Morgan (up $0.86 to $34.99, Research), McDonald's (up $0.79 to $34.24, Research) and Exxon Mobil (up $1.24 to $63.70, Research).
Dow component Intel (up $0.26 to $24.81, Research) also gained after Credit Suisse First Boston upgraded the chipmaker to "neutral" from "underperform" and boosted its 12-month price target to $27.50 from $24.
Adobe Systems (up $2.53 to $29.43, Research) rose after posting higher quarterly earnings and revenue late Thursday that topped estimates. The company attributed its strong quarter to improved sales of its PhotoShop and Illustrator software.
JDS Uniphase (up $0.14 to $1.86, Research) jumped after Citigroup upgraded it to "buy" from "hold" and boosted its 12-month price target to $2.50 to $1.65.
Time Warner (up $0.40 to $18.90, Research) rose for a second session after reports it was in talks to sell a stake in its America Online unit to Microsoft (down $0.20 to $26.07, Research).
On the downside, the homebuilding sector suffered a bout of profit-taking off its recent run. The Dow Jones Home Construction (down $29.02 to $976.11, Research) index lost nearly 3 percent.
Market breadth was positive. On the New York Stock Exchange, winners beat losers 9 to 7 as 2.54 billion shares changed hands. On the Nasdaq, advancers beat decliners 3 to 2 on volume of 2.27 billion shares.
One cloud in the picture was the preliminary September read on consumer sentiment from the University of Michigan. It came in well below expectations, reflecting the change in sentiment in the wake of Hurricane Katrina. The index swooned to 76.9 from 89.1 the previous month, below forecasts for a dip to 85.0.
U.S. light crude oil for October delivery slumped $1.75 to settle at $63 a barrel on the New York Mercantile Exchange.
Treasury prices slipped, raising the yield on the 10-year note to 4.27 percent from 4.21 percent late Thursday. Treasury prices and yields move in opposite directions.
The dollar inched lower versus the euro and rose versus the yen.
COMEX gold rose $4 to settle at $463.30 an ounce.
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