Stocks keep climbing

NEW YORK (CNNMoney.com) -- Stocks moved steadily higher Friday encouraged by a report that banking giant Merrill Lynch may sell a stake in itself to a foreign fund and impressive earnings from BlackBerry maker Research in Motion.

The Dow Jones industrial average (INDU) gained about 1.2 percent an hour into the session.

The broader S&P 500 index (SPX.X) climbed nearly 1.3 percent, while the tech-fueled Nasdaq (COMPX) rose about 1.3 percent.

Helping stocks higher was news that Merrill Lynch (MER, Fortune 500), one of the investment banks hardest hit by the credit crisis, is in talks to nab a $5 billion investment from Singapore's state investment firm, Temasek Holdings, The Wall Street Journal reported. Such a sale would provide encouragement to investors worried about the health of the financial sector.

Also spurring the rise: Research in Motion (RIMM) said late Thursday that it more than doubled its third-quarter results, helped by robust demand for its BlackBerry smart-phones. Shares gained nearly 10 percent on the Nasdaq.

On the economic front, personal income and spending for November came in higher than expected, while a key reading on inflation provided a mixed picture.

The core PCE reading, which strips out volatile food and energy costs and is favored by the Federal Reserve as a measure of inflation, rose 0.2 percent during the month, as expected. But for the year, core inflation is now running at 2.2 percent, higher than the 2 percent expected.

Treasury prices retreated as the yield sending the benchmark 10-year note to 4.07 percent from 4.03 percent in the previous session.

The Federal Reserve said Friday it lent another $20 billion to banks at an interest rate of 4.67 percent as part of its continuing effort to fire up the credit markets.

The central bank said it received a bid for $57.7 billion worth of loans, illustrating strong demand by banks that need short-term funds, adding that it planned to conduct these biweekly auctions for as long as necessary to help alleviate the credit crunch.

In other corporate news, Philips (PHG) of the Netherlands said it has agreed to acquire Respironics (RESP), which specializes in ways to combat sleep disorders, for $5.1 billion.

Consumer electronics retailer Circuit City (CC, Fortune 500) reported a wider-than-expected third-quarter loss blaming the dismal results on ongoing store reorganization and double-digit sales declines of gadgets like camcorders and DVD players. Shares of the retailer plunged 23 percent in morning trading.

And insurance broker Marsh & McLennan (MMC, Fortune 500) said it is looking to replace its chief executive after concerns over the company's recent financial performance.

Commodity prices were higher Friday as U.S. light crude for February gained 84 cents to $91.90 a barrel on the New York Mercantile Exchange.

COMEX gold for February rose $12 to $815.20 an ounce.

Overseas, Asian markets finished higher, while European stocks followed in midday trading.

The dollar was lower versus the euro and eased against the yen.