Wall Street's big rally

NEW YORK (CNNMoney.com) -- Technology led a broader stock advance Friday, as Microsoft's upbeat earnings and Countrywide's optimistic outlook overshadowed any potential worries about a plunging dollar and surging oil and gold prices.

Bets that the Federal Reserve will probably cut interest rates next week added to the day's gains.

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• Oil pops to another record above $92 a barrel
• Apple, Microsoft earnings boost tech sector
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The Dow Jones industrial average (Charts) added 1 percent. The S&P 500 (Charts) index rose around 1.4 percent. The Nasdaq composite (Charts) added 1.9 percent.

The market is in a period where it's very dependent on the day-to-day news for direction, and today the news was good, said Todd Salamone, director of trading at Schaeffer's Investment Research.

"When you have another sign of credit problems, or a company taking a big writedown, the market sells off," he said. "But on a day when you have a top-tier company like Microsoft reporting good earnings, that gives us a lift."

Microsoft's strong earnings report and forecast soothed investors worried about the first quarter of decelerating earnings growth in at least five years. Perhaps even more soothing was news that Countrywide expects to return to profitability in the fourth quarter, despite reporting a steep third-quarter loss.

Many traditional banks have already said their subprime hit won't extend beyond the third quarter. And if mortgage lenders, such as Countrywide, are also going to be able to get beyond the brutal third quarter, then that's an optimistic sign for the overall sector.

Investors may also be relieved that a majority of the bank earnings are out of the way, since that sector was expected to be one of the biggest drags on quarterly results going forward, said Tim Hartzell, chief market strategist at Kanaly Trust Company.

Investors were also looking to next week's meeting of the Federal Reserve. The central bank cut interest rates last month for the first time in four years, lowering the fed funds rate, a key short-term interest rate, by a half-percentage point to 4.75 percent. The move was made to try to loosen up the near-frozen credit market, and to protect the economy from slowing down too much in the wake of the housing market collapse.

Traders are betting that the Federal Reserve will cut interest rates again at the conclusion of its two-day meeting Wednesday, lowering the Fed funds rate to at least 4.50 percent.

"There should be a concern about more than $90 a barrel oil, and about the political instabilities that are contributing to it, but there's not," said John Davidson, president and CEO at PartnerRe Asset Management.

He said that part of the reason why is because there is a lot of enthusiasm built in about the Fed cutting rates next week.

"A lot of the optimism is about the Fed coming to the rescue, and that's also where the risk is," Davidson said.

He said that if the Fed doesn't cut rates by at least a quarter-percentage point, stocks could see a big selloff.

Tech behemoth Microsoft (Charts, Fortune 500) reported quarterly sales and earnings that topped estimates late Thursday. The company, a Dow component, also lifted its current quarter and fiscal-year earnings and revenue guidance. Shares jumped 9.5 percent.

"We were all concerned that gold and oil would steal the day this morning, but Microsoft was a good story, reflecting ongoing growth in technology," said Kanaly Trust's Hartzell.

The upbeat earnings report was important to stock investors, amid a decidedly mixed-to-weaker quarterly reporting period.

With 56 percent of the S&P 500 having reported September-quarter results, earnings growth is currently on track to have fallen 1 percent from a year ago, according to the latest Thomson Financial figures. That's a blended figure, combining reported and expected results, and makes the third quarter the worst for earnings growth in at least five years.

Countrywide Financial (Charts, Fortune 500), the poster child for the subprime mortgage malaise, reported a steep third-quarter loss that was worse than what analysts were expecting.

However, like a number of traditional banks that have already reported earnings, Countrywide said that it felt the worst of the mortgage meltdown in the third quarter. Looking forward, the company said the fourth quarter should be profitable. Shares rose.

Merrill Lynch (Charts, Fortune 500) stock jumped on reports that its CEO, Stanley O'Neal, could be forced to resign after the bank took a $7.9 billion writedown in the third quarter, related to bad mortgage investments. Additionally, the New York Times reported Friday that O'Neal talked with Wachovia about a potential merger, without consulting the bank's board.

The stocks of other financial services firms jumped in tandem, including Dow components American Express (Charts, Fortune 500), Citigroup (Charts, Fortune 500) and JP Morgan (Charts, Fortune 500).

But gains were broad based, with most sectors rising - 28 out of 30 Dow issues climbed.

Market breadth was positive. On the New York Stock Exchange, winners beat losers almost 3 to 2 on volume of 1.4 billion shares. On the Nasdaq, advancers topped decliners by 3 to 2 on volume of 2.65 billion shares.

In economic news, the University of Michigan's October consumer sentiment index was revised down to 80.9 from a previous read of 82. Economists thought it would be revised up to 82.3, according to Briefing.com estimates.

U.S. light crude oil for December delivery rose $1.40 to $91.86 a barrel on the New York Mercantile Exchange. Crude reached a record $92.22 in Asia trading overnight.

COMEX gold for December delivery rose $16.50 to settle at $787.50 an ounce.

Treasury prices slipped, raising the yield on the benchmark 10-year note to 4.39 percent from 4.38 percent late Thursday. Bond prices and yields move in opposite directions.

In currency trading, the dollar fell versus the euro and the yen.