Stocks Run to New Records

A strong payroll number and signs of easing inflation lift the market.
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Updated from 4:11 p.m. EDT

The

Dow Jones Industrial Average

and the

S&P 500

again reached new records Friday, as stocks rose following a flood of positive data on the U.S. economy.

At the close of trading, the Dow had a gain of 40.47 points, or 0.3%, at 13,668.11, marking its 26th record of the year. A 3.9% rise in

Wal-Mart

(WMT) - Get Report

led the way.

The S&P hit a third consecutive all-time high, tacking on 5.72 points, or 0.37%, to 1536.34. The

Nasdaq

was better by 9.40 points, or 0.36%, at 2613.92.

For the holiday-shortened week, the Dow rose 1.2%, rebounding from a loss the previous week. The S&P 500 climbed 1.4% over the four sessions, and the Nasdaq ended higher by 2.2%.

About 2.95 billion shares changed hands on the

New York Stock Exchange

, with advancers beating decliners by a 2-to-1 margin. Volume on the Nasdaq reached 1.92 billion shares, and winners outpaced losers 3 to 2.

"The economy is doing better, so we have higher interest rates, but we're flush with liquidity, and equities keep going higher." said Jay Suskind, head of institutional equity trading with Ryan Beck & Co.

Enthusiasm sprang from the closely watched monthly jobs report, which showed that 157,000 workers were added to U.S. payrolls in May. Economists had expected 135,000 positions to have been created.

Additionally, the unemployment rate remained at 4.5%, and average hourly earnings, a key inflation metric, rose 0.3%. Both matched consensus estimates.

Meanwhile, job growth for the prior two months was revised downward. The government now says 10,000 fewer employees were put to work in March and April than had been first thought.

"On the positive side, the economy continues to show it can add jobs," said Michael Sheldon, chief market strategist with Spencer Clarke LLC. "There were some negatives, in that the economy continues to lose manufacturing and retail jobs. Temporary employment declined for the fourth straight month.

"However, this was generally a reassuring report, and it's unlikely this report will bring the

Federal Reserve

in off the sidelines to take any sort of action," he added.

Traders also welcomed more positive inflationary data, after the Commerce Department said that personal income eased 0.1% in April, compared with estimates of a 0.3% increase. Personal spending was up 0.5%, slightly above expectations.

Excluding food and energy, the personal consumption expenditure price index is now higher by 2% over the past year, down from 2.1% in March. The number is now within the Fed's comfort zone range of 1% to 2%.

"When you consider the Fed minutes from earlier this week, it looks like they are likely to remain on hold for some time," said Sheldon. "The key factors that will lead the Fed to cut rates will be accelerated weakness in the housing market, a rise in the unemployment rate, as well as a decline in income."

At 10 a.m. EDT, the Institute for Supply Management said its manufacturing index rose to a reading of 55.0 in May from 54.7 in April. Economists expected a slight decline to 54.0.

"It does now appear there has been a real improvement in the state of the manufacturing sector," said Ian Shepherdson, chief economist with High Frequency Economics. "Whether this can last in the face of rising inventory and slowing retail sales growth is another question, but for now the sector looks much healthier than in the early part of the year."

Also after the opening bell, the University of Michigan said its consumer sentiment index was revised to 88.3 from a previous reading of 87.1, slightly better than estimates. On the downside, the National Association of Realtors said pending home sales unexpectedly fell 3.2% in April.

Treasury prices dropped after the economic reports. The 10-year note tumbled 16/32 to yield 4.96%, and the 30-year bond fell 23/32 in price, yielding 5.06%. The dollar rallied against the world's major currencies.

Helping boost tech shares was a 1.5% increase in

Dell

(DELL) - Get Report

, which said after the last close that it would cut 10% of its employees. At the same time, the PC maker's quarterly numbers were better than had been expected.

Also on the rise was publisher

Dow Jones

(DJ)

, whose stock jumped 14.8% to $61.20 following word that the company's controlling family would be willing to hold talks with

News Corp.

(NWS) - Get Report

and other potential acquirers. The announcement was a turnaround for the Bancrofts, a majority of whom had been opposing a $5 billion offer from News.

Several firms were altering ratings on stocks. Among upgrades, UBS raised its rating for auto-parts maker

Lear

(LEA) - Get Report

to neutral from reduce. Elsewhere, Lehman Brothers downgraded

Nasdaq Stock Market

I:IXIC

to equal-weight from overweight.

Lear tacked on 7 cents, or 0.2%, to finish the week at $35.74. Shares of Nasdaq eased 7 cents, or 0.2%, to $33.21.

Automakers posted vehicle sales results for May.

Ford

(F) - Get Report

said sales fell 6.8% last month, while

DaimlerChrysler

(DCX)

posted a 3.9% rise.

General Motors

(GM) - Get Report

reported a 9.6% gain in sales.

Crude oil jumped $1.07 to $65.08 a barrel. Precious metals also moved ahead. Gold advanced $10.20 to $676.90 an ounce.

Overseas, stocks were mostly stronger. Tokyo's Nikkei was up 0.5%, but Hong Kong's Hang Seng eased 0.2%. The FTSE in London added 0.8%, and the Frankfurt DAX climbed 1.3%.