Stocks Edge Up to Close at Multi-Year Highs

"But we doubt the FOMC, which is dominated by those who view further easing favorably, will want to 'wait and see.' As such, we increase our odds of a third asset purchase program in September to 90% from more than 50% previously."

"QE3 is a done deal," said Greenhaus.

In August, average hourly earnings for all employees on private nonfarm payrolls edged down by 1 cent to $23.52. Hourly earnings were forecast to have risen 0.2%.

The average workweek for all employees on private nonfarm payrolls was unchanged at 34.4 hours in August

Ameriprise's Price said if the market does not get a large scale bond purchase program out of next week's FOMC meeting, it can still expect an extension of the period over which the committee expects to maintain its target range for the federal funds rate at 0 to ¼ percent, and voting members to indicate an increased likelihood of another round of large-scale bond-purchases such as QE3 if economic weaknesses persist.

Price believes the language coming out the meeting will become open-ended, amounting to "as long as it takes."

The FTSE in London closed up 0.3%, while the DAX in Germany settled up 0.66%. The Hong Kong Hang Seng index finished up by 3.09% and the Nikkei in Japan closed up 2.2%. The gains followed China's approval this week of 60 infrastructure projects valued at more than 1 trillion yuan ($157 billion), or 2.1% of the country's gross domestic product, and data showing a gain in both exports and imports in Germany, the eurozone's largest economy.

The benchmark 10-year Treasury rose 4/32, diluting the yield to 1.671%. The greenback dove 1.18%, according to the dollar index, hitting a four-month low.

October crude oil futures rose 89 cents to settle at $96.42 a barrel and December gold futures soared $34.90 to settle at $1740.50 an ounce.

On the corporate front Friday, Smith & Wesson (SWHC), the gun maker, posted fiscal first-quarter net income from continuing operations of $18.9 million, or 28 cents a share, on revenue of $136 million, topping the estimates of Wall Street analysts.

The company also lifted its outlook for the fiscal year ending in April 2013, forecasting earnings of 85 to 90 cents a share on revenue ranging from $530 million to $540 million. Shares rose nearly 12%.

Lululemon Athletica (LULU) shares were surged more than 12% after the designer and retailer of technical athletic apparel boosted its full-year outlook after reporting better-than expected second-quarter earnings of 34 cents a share on revenue of $282.6 million. Same-store sales increased 15%. Analysts, on average, were expecting earnings of 31 cents a share on revenue of $282.76 million.

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