Stocks Surge Into Weekend

Both the S&P and Nasdaq reach four-and-a-half-year highs.
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Updated from 4:08 p.m. EST

Stocks ended the first week of 2006 with a bang Friday, racing higher after a lukewarm employment report convinced traders that the

Federal Reserve

will soon end its 18-month rate-tightening campaign. The

Nasdaq

led the charge, completing an abbreviated week in which the tech-heavy index added 4.53%.

After a sputtering start, the

Dow Jones Industrial Average

closed up 77.16 points, or 0.71%, to 10,959.31, paced by 3% gains in

IBM

(IBM) - Get Report

and

Hewlett-Packard

(HPQ) - Get Report

. The

S&P 500

rose 11.97 points, or 0.94%, to 1285.45, while the

Nasdaq Composite

surged 28.75 points, or 1.26%, to 2305.62.

The S&P, which rose 2.98% on the week, and the Nasdaq both reached four-and-a-half-year highs. The Dow, which rose 2.25% on the week, ended at its best level since mid-2001.

"This was a great end to a great week," said Barry Hyman, equity market strategist with Ehrenkrantz King Nussbaum. "The market has exhibited itself in a different light for this early-year trading. There's even more anticipation of the Fed ending sooner than later, which is building a lot of excitement."

The advance-decline line was solidly positive. About 1.77 billion shares traded on the

New York Stock Exchange

, with advancers beat decliners by a 3-to-1 margin. Trading volume on the Nasdaq was 2.29 billion shares, with decliners outpacing advancers 2 to 1.

The 10-year Treasury was down 5/32 in price to yield 4.38%, narrowing the spread with the two-year note to 2 basis points. The dollar fell against the yen and the euro.

Headlining the news was the Labor Department's jobs report, which showed that U.S. payrolls grew by 108,000 in December, missing expectations for 200,000. Offsetting some of the shortfall was a net upward revision of 65,000 jobs created in October and November.

The unemployment rate dipped to 4.9% from 5.0%. Average hourly earnings were up 0.3%.

"It's a little weaker than anticipated but still a good number," said Peter Cardillo, chief market analyst with SW Bach & Co. "It shows the economy is still enjoying full employment. There are no wage inflation problems either."

To view Kara Wetzel's video take on today's market, click here

.

Wall Street welcomed the news as evidence the Fed has raised rates enough to keep the economy from overheating. While the market still anticipates another quarter-point increase in the fed funds rate to 4.50% in late January, it puts the the odds of a March hike at about 50%.

"The numbers are good from the Fed's perspective, even with November's ramped up numbers," said Paul Nolte, director of investments with Hinsdale Associates. "Job growth is still slow and wage pressure has been nonexistent all year. If trends continue it could put pressure on the consumer. We may see the Fed have one more rate hike and then

be done."

Away from stocks, oil continued to defy gravity amid fresh speculative inflows and evidence of a strong economy. February crude added $1.42 to close at $64.21 a barrel, its highest level since early October. Natural gas futures were up 13 cents to $9.63 per million British thermal units.

The spike in oil prices sent the Amex Oil index higher by 2.2% and the Philadelphia Oil Service Sector index up 3.6%.

Among stocks,

Microsoft

(MSFT) - Get Report

was cut to neutral from buy at CSFB, which cited recent price appreciation. Microsoft was off 8 cents, or 0.3%, to close at $26.91.

Elsewhere, Goldman Sachs raised its price target for

Google

(GOOG) - Get Report

to $500 from $400. The firm also boosted its fourth-quarter earnings estimate to $1.69 a share from $1.62 and its 2006 earnings forecast by 18 cents to $8.98 a share. Shares of Google gained $14.42, or 3.2%, to $465.66.

Separately, Goldman took its 2006 earnings estimate on

Yahoo!

(YHOO)

to 85 cents a share from 79 cents and raised its stock price target to $50 from a range of $40 to $44. Yahoo! tacked on $1.65, or 4%, to $43.18.

IBM

(IBM) - Get Report

will stop contributing to employee pensions starting in 2008, instead putting funds in 401(k) plans where employees must direct their own investing. The move is part of a trend away from costly "defined benefit" plans at many companies. IBM was higher by $2.45, or 3%, to $84.95.

Electronics retail chain

Best Buy

(BBY) - Get Report

said December U.S. same-store sales rose 5.6%, while international same-store sales grew 6.6%. Revenue for December increased 12% to $5.7 billion. Shares of Best Buy surged $3.55, or 8.2%, to $47.05.

Rival

Circuit City

(CC) - Get Report

said total same-store sales rose 10.8% in December, as U.S. same-store sales jumped 11.1%. Sales were up 12.1% to $1.98 billion for the month. The retailer also raised its 2006 sales forecast to a range of 10% to 12% from the prior outlook of 8% to 10%. The stock was up 15 cents, or 0.7%, to finish at $22.94.

Wendy's

(WEN) - Get Report

said fourth-quarter U.S. same-store sales fell 2.9% at company stores and were down 1.9% at franchised restaurants. Wendy's added $1.43, or 2.6%, to $55.73.

EMC

(EMC)

said it expects fourth-quarter earnings, before items, of 17 cents a share. For the full year, the data-storage company expects revenue in a range between $9.65 billion and $9.66 billion. The Thomson First Call consensus currently stands at earnings of 17 cents a share.

EMC has also approved a plan that will eliminate 1,000 jobs over the course of 2006. The company will incur a charge of about $80 million in the fourth quarter. Shares of EMC lost 25 cents, or 1.8%, to $13.73.

Shares of

Take-Two

(TTWO) - Get Report

rose 1.4% despite reporting a 70% plunge in fourth-quarter earnings, forcing the company to cut guidance for the current quarter and year. Fourth-quarter earnings also missed estimates. The stock closed up 25 cents to $18.72.

Accenture's

(ACN) - Get Report

first-quarter earnings topped estimates. The consultancy earned $214.9 million, or 36 cents a share, compared with $196.3 million, or 32 cents a share, a year earlier. Net revenue grew 12%. Accenture advanced $1.47, or 5%, to close at $31.15.

Overseas markets were flat to higher, with London's FTSE 100 up 0.7% to 5731 and Germany's Xetra DAX tacking on 0.4% at 5536. In Asia, Japan's Nikkei was unchanged overnight at 16,428, and Hong Kong's Hang Seng added 0.5% to 15,344.

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