Big rally on Wall Street

NEW YORK (CNNMoney.com) -- Strong corporate earnings from Oracle helped recharge the stock market rally Friday afternoon, at the end of an upbeat week on Wall Street driven by the first Federal Reserve interest rate cut in four years.

The Dow Jones industrial average (Charts) and the broader S&P 500 (Charts) index both gained around 0.7 percent roughly 2-1/2 hours into the session. The tech-heavy Nasdaq composite (Charts) gained 0.8 percent.

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Gains were broad based, with 26 out of 30 Dow issues rising, led by Walt Disney (Charts, Fortune 500), Hewlett-Packard (Charts, Fortune 500), Microsoft (Charts, Fortune 500) and Verizon Communications (Charts, Fortune 500).

Stocks rallied Tuesday and Wednesday, after the Federal Reserve cut a key short-term interest rate, reassuring investors worried that the mortgage and credit market malaise would send the economy into recession.

But the advance hit a roadblock Thursday on weak bank sector earnings, a plunging dollar, record oil prices and a Congressional hearing about the subprime mortgage mess.

After the one-day pullback, investors seemed willing to restart the advance Friday, thanks in part to some strong earnings.

"We're having a good day at the end of a good week," said Art Hogan, chief market analyst at Jefferies & Co. "If we look at the drivers, they were monetary policy and corporate news that was less bad than expected, in the case of the banks reporting earnings."

Oracle (Charts, Fortune 500) reported higher quarterly earnings and revenue that topped estimates late Thursday. The business software leader also reported a large jump in sales of new software licenses, that topped forecasts.

Oracle shares shot up almost 5 percent Friday and topped the Nasdaq's most-actives list.

Also late Thursday, Nike (Charts, Fortune 500) reported higher quarterly earnings and revenue that beat expectations, thanks to a tax benefit and a boost from the weak U.S. dollar.

In other news, U.S. based toy maker Mattel (Charts, Fortune 500) apologized to China about the recall of Chinese-made toys, saying it was responsible for design flaws - and that it had recalled more lead-tainted toys than was necessary.

Market breadth was positive. On the New York Stock Exchange, winners topped losers by more than two to one on volume of 1.22 billion shares. On the Nasdaq, advancers beat decliners by four to three as 1.46 billion shares changed hands.

Friday brings the quarterly options expiration, a day when stock index futures and options, and individual stock futures and options are all expiring simultaneously. This event can sometimes increase market volatility.

A number of central bank officials spoke Friday, including Federal Reserve Vice Chairman Donald Kohn and Fed governors Frederic Mishkin and Kevin Warsh, all of whom are voting members of the 2007 FOMC.

Speaking at a conference in Germany, Fed governor Mishkin said that economic downturns have always been connected to instability in financial markets, and that policy makers should keep that in mind. He also discussed inflation targeting.

Fed Vice Chairman Kohn, also speaking at the conference, indicated he is now less opposed to inflation targeting - having specific set goals for price gains - than he has been in the past.

Kohn also spoke to recent questions about whether this week's Fed rate cut went too far and essentially bailed out investors who made bad decisions, saying that the focus of the central bank is always the macro economy.

In the afternoon, Fed Governor Kevin Warsh, speaking at SUNY-Albany's school of business, discussed the recent volatility in financial markets, the drying up of liquidity this summer and the subprime mortgage market fallout.

Treasury prices rose, bouncing back after several down days. The gain lowered the yield on the 10-year note to 4.64 percent from 4.70 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell to a new record low against the euro before recovering some ground, and slipped against the yen. On Thursday, it stood at equal value with the Canadian dollar for the first time in more than 30 years.

U.S. light crude oil for November delivery fell 49 cents to $81.29 a barrel on the New York Mercantile Exchange. The October contract settled the previous day at $83.32, ending at a record high for the fourth session in a row.

However, the record price remains below inflation-adjusted highs hit in the early 1980s, which would be equal to at least $95 a barrel today.

COMEX gold for December delivery fell 40 cents to $739.50 an ounce.