Wall St.: Thanks Bernanke, Bush

NEW YORK (CNNMoney.com) -- Stocks jumped Friday, ahead of a long holiday weekend, after Ben Bernanke pledged the central bank will keep financial markets stable and the Bush Administration offered help to consumers hurt by the subprime mortgage crisis.

Treasury prices fell, raising the corresponding yields. The dollar was mixed versus other major currencies. Oil and gold prices rose.

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The Dow Jones industrial average (up 119.01 to 13,357.74, Charts) rose 0.9 percent and the broader S&P 500 (up 16.35 to 1,473.99, Charts) index rose around 1.1 percent. The Nasdaq Composite (up 31.06 to 2,596.36, Charts) rose 1.2 percent.

For the week, the Dow and the S&P 500 posted slim declines, while the Nasdaq rose about 0.8 percent.

Encouraging comments from Bernanke and President Bush seemed to soothe markets Friday, calming worries about the turmoil in the credit and mortgage markets. The question for market participants next week and in the week's leading up to the Sept. 18 Fed policy meeting is whether that sense of relief is sustainable.

All financial markets are closed Monday for the Labor Day national holiday. Tuesday kicks off a big week for economic news, culminating with Friday's August jobs report. (Click here for details).

However, it's not just the economic news that investors will be watching. One of the most important events next week could be whether any of the big brokerages that are very involved in credit transactions issue earnings warnings, said Georges Yared, chief investment strategist at Yared Investment Research.

He was referring to Bear Stearns (Charts, Fortune 500), Goldman Sachs (Charts, Fortune 500), Merrill Lynch (Charts, Fortune 500), Morgan Stanley (Charts, Fortune 500) and Lehman Brothers (Charts, Fortune 500), many of which were cited in bearish analyst notes about the sector earlier in the week.

"The bad news is already in the stocks, but there's a question of whether they'll start to reveal how their balance sheets look," Yared said. Such information will be crucial in terms of determining how badly the credit market will suffer going forward," he said.

Here's a look at some of the key reports to watch in the week ahead:

Tuesday: The Institute for Supply Management's manufacturing index for August is expected to have fallen to 53 in the month from 53.8 in July, according to a consensus of economists surveyed by Briefing.com.

Wednesday: July pending home sales and the Fed's periodic 'beige book' look at the economy are both due during the session.

Thursday: The Institute for Supply Management's services index for August is expected to have fallen to 54.5 from 55.8 in July.

Friday: The August jobs report is expected to show that unemployment held steady at 4.6 percent, and that employers added 120,000 jobs to their payrolls after adding 92,000 jobs in July.

All three major gauges rose prior to the two morning speeches, gyrated as the speeches were underway, and then moved higher again in the early afternoon.

Speaking at an economic symposium in Jackson Hole, Wyoming, Fed chief Bernanke discussed the recent turmoil in credit, mortgage and financial markets and again implied that the central bank was prepared to cut rates, if needed. The comments mirrored the general tone of a letter to Democratic Senator Charles Schumer, released publicly earlier in the week.

"Bernanke knew that he had to sound sympathetic to the difficulties in the financial markets and affirm what he said in the letter to Schumer: that the Fed is ready to act and provide stability to financial markets," said Wan-Chong Kung, senior fixed-income portfolio manager at First American Funds.

The Bush Administration's proposed plan was also helping to reassure investors, she said.

In a speech starting at around 11:00 a.m. ET, President Bush introduced a number of initiatives to help homeowners hurt by the subprime mortgage crisis avoid defaulting on their loans. (For more details, click here.)

The morning also brought readings on consumer spending, manufacturing, factory orders and consumer sentiment. (For more details, click here.)

Stock gains were broad based, with 27 out of 30 Dow components rising, led by Citigroup (up $0.65 to $46.88, Charts, Fortune 500), Caterpillar (up $1.11 to $75.77, Charts, Fortune 500), Hewlett-Packard (up $0.91 to $49.35, Charts, Fortune 500), Home Depot (up $1.27 to $38.31, Charts, Fortune 500) and Intel (up $0.47 to $25.75, Charts, Fortune 500).

In his speech, Bernanke said that the housing downturn has been "sharp" and has been responsible for reducing the annual rate of U.S. economic growth over the past year and a half.

Bernanke talked about how this has impacted the mortgage market, particularly the fate of subprime borrowers - those with less than ideal credit - who borrowed during the housing boom and are now struggling to hold on to their homes as rates have risen. He also discussed how this effect has spread out to other kinds of loans and contributed to tighter credit markets.

Bernanke also acknowledged how this has impacted financial markets, which have struggled all summer amid investor worries about these issues. He said that the economic picture was more uncertain going forward and that the Fed would continue to monitor it and adjust policy as needed.

"He pretty bluntly said, 'Things have changed since August 7, so the data we were looking at have changed,'" Yared said.

The acknowledgment was a relief to investors who were spooked earlier in the week by the release of the minutes from the Aug. 7 Fed policy meeting, in which the bankers appeared to not fully acknowledge or take seriously the market turmoil.

"He's saying that the Fed is not responsible for bailing out bad decisions and stepping in every time a hedge fund is in trouble," Yared said. "But he also said that they are truly watching the consumer, and that's where they are going to be more compassionate."

However, Bernanke fell short of telling consumers and stock investors what they were perhaps hoping to hear, namely that the Federal Reserve will cut the fed funds rate, a key short-term interest rate, at its next policy meeting on Sept. 18.

The Fed has already cut the discount rate, which affects bank loans, and injected billions into the banking system as a means of keeping liquidity afloat. However, the central bank may not be willing to cut the fed funds rate - which affects consumer loans - unless the economy slows down enough to warrant it.

"I think for him to feel that the Fed needs to cut, he would first need to have a sense that the central bank's outlook for growth is in jeopardy," said Kung. "But things are so fluid right now that I don't think there is any prejudgment on the Fed's part as to what they will do next month."

The morning also brought a number of economic reports.

Personal income and spending both rose more than expected in July, according to one report. However, core inflation grew less-than-expected, despite the jump in earnings and expenditures.

The Chicago PMI, a measure of manufacturing in the Midwest, rose to 53.8 in August from 53.4 in the previous month. Economists surveyed by Briefing.com thought it would slip.

July factory orders rose 3.7 percent in the month after rising 1 percent in June. Economists expected orders to rise 3.0 percent.

And the University of Michigan's consumer sentiment index for August was revised up to 83.4 from an earlier read of 83.3. Economists thought it would be revised down to 83.0.

In corporate news, Dell (down $0.21 to $28.25, Charts, Fortune 500) reported quarterly earnings and revenue late Thursday that rose from a year ago and topped forecasts. Shares were little changed Friday.

Accredited Home Lenders (up $2.74 to $9.05, Charts) surged 43 percent after proposed buyout partner Lone Star Funds said it was prepared to buy the troubled mortgage lender after all, but at a lower price. Lone Star's proposed buyout offer has been in jeopardy amid the recent market turmoil.

Market breadth was positive and volume was light. On the New York Stock Exchange, winners beat losers by more than 6 to 1 on volume of 1.39 billion shares. On the Nasdaq, advancers topped decliners by 7 to 3 on volume of 1.57 billion shares.

Treasury prices slipped, raising the yield on the 10-year note to 4.53 percent from 4.50 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar inched higher versus the euro and eased against the yen.

U.S. light crude oil for October delivery rose 68 cents to settle at $74.04 a barrel on the New York Mercantile Exchange.

COMEX gold for December delivery rose $8 to settle at $681.90 an ounce.