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Stocks Gain as 'Bad News Is Good News' Eases Investor Concerns

NEW YORK (TheStreet) -- U.S. stocks gained Friday as a raft of soft U.S. economic data eased investor concerns the Federal Reserve will scale back its stimulus program.

TheS&P 500 gained 0.27% to close at 1,687.99. The Dow Jones Industrial Average finished the regular trading day higher by 0.49%, to 15,376.06. The Nasdaq added 0.17% to close at 3,722.18.

The Fed is scheduled to begin its two-day policy meeting on Sept. 17 with a policy declaration coming the following day. The results of that meeting could have an outsized impact on global markets as the Fed decides whether to scale back its economic stimulus program. The central bank currently purchases $85 billion a month in mortgage-backed securities and longer-term Treasuries.

"That's a big deal -- that's what everybody's waiting for," Allan Flader, a financial adviser at RBC Wealth Management, in a phone interview. "How much are they going to taper? Are they going to taper? What the heck is going on?" RBC forecats a $15 billion reduction [in monthly asset purchases]," Flader said.

Investors view the Fed's economic stimulus program as a positive for stocks while equity analysts generally credit quantitative easing for having catapulted U.S. markets to recent all-time highs after bottoming in March 2009.

On the economic calendar, the Commerce Department reported Friday that August retail sales grew 0.2% month-over-month, and showed slower growth from July's revised 0.4% increase. Economists surveyed by Thomson Reuters were expecting retail sales in August to rise 0.4%.

"[T]his morning's retail sales report was disappointing as back-to-school shopping fell short," Lindsey Piegza, chief economist at Sterne Agee, wrote in a note to clients. "And while the Fed isn't necessarily watching the monthly retail sales data as a catalyst to policy change, a slowdown in spending is indicative of underlying weakness."

Consumer sentiment reported its lowest reading since April as the mid-month Reuters/University of Michigan index hit 76.8 in September. Economists surveyed by Thomson Reuters were expecting a reading of 82.

The September reading "reflects the surge in interest rates and the drop in stock markets, although the latter has been partially reversed since the survey's sample period ended. We suspect that third-quarter consumption growth will struggle to match second-quarter's 1.8% annualized," Capital Economics wrote in a note on Friday.

Producer prices in August grew 0.3%, while the core rate increased at the same pace from a year ago at 1.2%, according to the Bureau of Labor Statistics. Economists were looking for producer prices to rise 0.2% in August after no change in July, while core prices were expected to rise 1.3%.

Business inventories for July rose 0.4%, the largest increase since January. Economists were looking for a 0.2% boost.

Gains during the regular trading session contrasted losses in futures markets that came on the early morning Nikkei report citing unnamed sources that Summers would receive the appointment. Market participants have viewed a possible Summers appointment as a more hawkish selection to lead the Fed than Vice Chairwoman Janet Yellen, despite the fact that Obama's former National Economic Council director has shown a willingness to continue monetary stimulus. White House spokeswoman Amy Brundage tweeted that the Japanese press report isn't true.

Futures turned lower after the Fed news spread.

"The downbeat in futures, based on that rumor, is self explanatory: Summers is a controversial character and there is split opinion as to whether he would be an appropriate choice," said Lawrence Creatura, portfolio manager at Federated Investors.

In company news, micro-blogging platform Twitter announced Thursday afternoon that it had filed its S-1 confidential registration statement to the Securities and Exchange Commission as a first step toward listing on the public exchanges. Details were immediately unclear as the S-1, made possible by the Jumpstart Our Business Startups or JOBS Act, allows for companies that made less than $1 billion in prior-year revenue to file confidentially. Speculation is growing that the company has huge potential to build advertising revenue.

"Up to now, Twitter's advertising platform has been for the most part in beta status ... and [they] haven't heavily promoted their capabilities for advertising, especially to small- and mid-size businesses," said Ryan Cohn, vice president of social digital operations at Sachs Media Group.

Safeway was one of the top performers in the S&P 500 after Credit Suisse analyst Edward Kelly upgraded the stock to "Outperform" from "Underperform." Shares added 6.1% to close at $28.20.

JPMorgan Chase (JPM) plans to spend another $4 billion and commit 5,000 extra employees this year to address risk and compliance problems, The Wall Street Journal reported, citing sources. Shares rose 0.67% to $52.59.

Intel (INTC) was the top performer on the Dow on Friday after Jefferies analyst Mark Lipacis upgraded the stock to "Buy" from "Hold." Shares popped 3.6% to $23.44.

-- Written by Joe Deaux in New York.

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