Stocks rally on day, week

By Alexandra Twin, senior writer


NEW YORK(CNNMoney.com) -- Stocks rallied Friday, with the Dow briefly turning positive for the year after a report showed that most of Europe's big banks passed their stress tests, easing investor worries about the strength of the global economy.

A rally in the euro, better-than-expected quarterly profit reports from Microsoft, Ford and others and some deal news in the biotech sector all added to the day's gains.

What do you think recent earnings reports mean?
  • Just a pause in recovery
  • A much longer, slower recovery
  • Prelude to double-dip recession

The Dow Jones industrial average (INDU) added 102 points, or 1% and closed at 10,424.62, just shy of the 10,428.05 where it ended last year. The S&P 500 (SPX) index rose 9 points or 0.8%, closing above 1100 for the first time in a month. The Nasdaq (COMP) composite gained 23 points or 1%.

Stocks struggled in the morning as investors weighed a mix of earnings ahead of the release of the stress test results. Investors were also reluctant to move much after Thursday's big rally, sparked by a series of strong profit reports.

But the release of the test results -- which showed that the major European banks are sufficiently capitalized should a double-dip recession take place -- seemed to soothe investors, paving the way for an afternoon rally.

"The lack of bad news in the stress tests helped the market," said Tom Schrader, managing director at Stifel Nicolaus. "Everyone was anticipating some negative news and when that didn't happen, everything popped."

The test of 91 banks showed all but 7 would be able to hold on during a downturn and emerge in good shape, even if they suffered billions in asset writedowns and trading losses. However, critics contend that the tests didn't go far enough to account for how banks holding sovereign bonds might react if a particular country defaulted on its debt, say Greece or Spain.

Investors also welcomed news that General Electric (GE, Fortune 500) is boosting its dividend by 20% and will retart its share buyback program at the end of the quarter.

All three major gauges gained for the week, and the Dow is now within shouting distance of breaking even for the year, after having been in danger of falling into a bear market just a month ago.

"The market is indicating to me that it wants to go up and we're seeing some good solid earnings and economic news to support that," said John Wilson, chief technical strategist at Morgan Keegan. "But I'd love to see some better (trading) volume come in to reinforce that."

He said that the weak trading volume reflects the fact that its summer and many market pros are on vacation or are holding off on making big moves until the fall. However, it also indicates less enthusiasm on the part of buyers.

Quarterly results: Ford Motor (F, Fortune 500) reported better-than-expected quarterly sales and earnings that reversed its operating loss from a year ago, building on its return to profitability following several years of weakness. Shares gained 5.2%.

Dow component Verizon Communications (VZ, Fortune 500) posted a quarterly loss due to costs associated with a buyout of 11,000 workers. Excluding those costs, the telecom posted earnings that topped estimates and revenue that missed forecasts. Shares gained 3.8%.

Dow component McDonald's (MCD, Fortune 500) reported better-than-expected quarterly earnings that rose from a year ago, but reported weaker-than-expected sales at stores open a year or more -- a retail metric known as same-store sales. Shares fell 2.1%.

After the close Thursday, fellow Dow component Microsoft (MSFT, Fortune 500) reported higher quarterly sales and earnings that topped estimates, thanks to strong sales of its Windows 7 and an improved personal computer market. Shares ended little changed.

Also after the close Thursday, Dow component American Express (AXP, Fortune 500) reported higher quarterly sales and earnings that topped expectations. The company's CEO also issued a tepid outlook on the economy. Nonetheless AmEx shares rallied 3.6%.

On Thursday, Amazon.com (AMZN, Fortune 500) reported quarterly sales and earnings that rose from a year ago, but missed some analysts' projections. Shares fell as much as 11% in pre-market trading and 9% in the morning, but cut losses to 1% by the close.

Deals: Shares of Genzyme (GENZ, Fortune 500) spiked 15.4% on a report that French biotech Sanofi-Aventis (SNY) has informally approached the company about a potential buyout, the Wall Street Journal reported Friday. Sanofi-Aventis' American Depositary Receipts (ADRs) slipped 4.2%.

Banking: Pay czar Kenneth Feinberg's latest review of pay practices at banks that received bailout funds showed 17 companies made $1.6 billion in "ill-advised payments" during the financial market crisis. Companies listed included Citigroup and Goldman Sachs.

World markets: European markets were mixed, with Britain's FTSE 100 ending little changed, Germany's DAX rising 0.4% and France's CAC 40 rising 0.2%. In Asia, the Japanese Nikkei gained 2.3%.

Currencies: Moody's put Hungary on review for a potential downgrade of its debt, reminding investors that the European debt crisis is far from over. That sent the euro lower versus the dollar, while the dollar gained versus the Japanese yen.

Commodities: U.S. light crude oil for September delivery fell 30 cents to settle at $79 a barrel on the New York Mercantile Exchange.

COMEX gold for August delivery fell $6.40 to $1,189.20 an ounce.

Bonds: Treasury prices fell as stocks rose and investors pulled money out of the safety of government debt. The slide lifted the yield on the 10-year note to 2.99% from 2.93% late Thursday. Debt prices and yields move in opposite directions.

Market breadth: Breadth was positive and volume was light. On the New York Stock Exchange, winners beat losers by four to one on volume of 960 million shares. On the Nasdaq, advancers beat decliners by over three to one on volume of 2.43 billion shares. To top of page

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