Stocks edge higher, add to week's big gains

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Associated Press

Posted on October 9, 2009 at 11:06 AM

Updated Friday, Oct 9 at 11:06 AM

NEW YORK (AP) — Stocks edged higher Friday, adding to the week's big gains after the government issued a mixed trade report.

The Commerce Department said the trade deficit declined 3.5 percent to $30.7 billion in August, as imports fell on lower oil demand. Economists expected the deficit to rise to $33 billion, or 3.3 percent from July's level, which was the highest in six months.

Exports of goods and services edged up 0.2 percent, an encouraging sign that the global economy is strengthening. But the decline in imports shows that domestic consumption is still weak.

Investors were also keeping a close watch on the dollar Friday, which recovered some of its recent losses after Federal Reserve Chairman Ben Bernanke reassured markets that the U.S. central bank will be able to wind down in its extraordinary stimulus measures when the time is right. His comments Thursday night calmed some of investors' fears about inflation, which can be triggered by a falling dollar.

The market's seven-month rally was put firmly back on track this week after two down weeks. Going into Friday, the Dow Jones industrial average is up 300 points, or 3.2 percent, for the week. The benchmark Standard & Poor's 500 index is up 3.9 percent.

In early trading, the Dow rose 24.79, or 0.3 percent, to 9,811.66. The Standard & Poor's 500 index added 2.08, or 0.2 percent, to 1,067.56, while the Nasdaq composite index rose 9.08, or 0.4 percent, to 2,133.01.

About seven stocks rose for every six that fell on the New York Stock Exchange, where volume came to 145 million shares, compared with 167.9 million at the same time the day before.

Investors have cheered more signs this week that the economy is healing, including growth in the service sector, a surprisingly good profit report from aluminum maker Alcoa Inc. and the first gain in retail sales in over a year.

But with earnings season just getting under way, the market likely faces a bumpy few weeks. Major financial companies, one potential trouble spot for the market, report next week. Investors, having sent the S&P 500 index up 57.5 percent since March, are looking for reassurance from companies that the economy is growing.

"The market has factored in good earnings and the market has actually discounted good guidance as well," said Jim Herrick, director of equity trading, Baird & Co. "So if we don't see that, the market will retrace."

The ICE Futures U.S. dollar index, which tracks the greenback against other currencies, rose 0.5 percent in early trading.

Record low interest rates and massive government spending have weakened the dollar considerably this year, sending the dollar index down nearly 15 percent since early March when the stock market's rally began.

The weak dollar has been a boon to stocks and commodities as investors go in search of higher yielding assets. The drop in the dollar also boosts corporate profits by making U.S. goods cheaper to overseas buyers.

Though the Fed has said it will keep interest rates low for some time, Bernanke's comments Thursday raised expectations that the central bank may hike rates sooner than anticipated to support the dollar.

Australia surprised global markets earlier this week by becoming the first major economy to raise interest rates this year, a sign the country is more confident about its economic prospects. On Thursday, both the European Central Bank and the Bank of England left their interest rates unchanged.

Oil prices added 32 cents to $72.02 a barrel on the New York Mercantile Exchange. Gold prices slipped after touching a fresh high of $1,062.70 on Thursday.

Bond prices extended their losses from Thursday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.33 percent from 3.25 percent late Thursday.

In other trading, the Russell 2000 index of smaller companies rose 2.90, or 0.5 percent, to 610.65.

Overseas, trading was mixed. Shanghai's main index climbed 4.8 percent, while Japan's Nikkei stock average rose 1.9 percent. In afternoon trading, Britain's FTSE 100 rose 0.1 percent, Germany's DAX index dipped 0.03 percent and France's CAC-40 fell 0.2 percent.

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