Updated from 4:06 p.m. EDT

Stocks closed higher Friday as strong earnings from Microsoft ( MSFT) and other tech names boosted the Nasdaq, while the broader market continued to play out the struggle between positive quarterly reports and inflationary economic data.

The Nasdaq finished up 16.86 points, or 0.8%, to close at 2049.77 -- its highest level in about 10 days -- to complete its third winning week in the last four. The Dow Jones Industrial Average closed 11.64 points higher, or 0.1%, to 10,472.84, while the S&P 500 was up a point at 1140.60.

Volume on the New York Stock Exchange was 1.4 billion shares, while 1.9 billion shares traded hands on the Nasdaq. Losers beat winners on both indices.

Microsoft Leads the Way

Shares of Microsoft propped up both indices, with about 257 million shares moving on the day -- it's highest level in more than three years. Microsoft closed up $1.59, or 6.1%, at $27.54.

Late Thursday, the software giant said third-quarter earnings fell due to a legal charge, but excluding the charge earnings came in 5 cents ahead of estimates. A 17% jump in revenue to $9.18 billion was also well ahead of expectations.

Overall, decliners equaled advancers on the Nasdaq, while the percentage of up volume beat down volume also by a margin of about 2 to 1.

One hundred-sixteen stocks on the Nasdaq hit new highs in the session, compared with 19 new lows. On the NYSE, there were 158 new lows, compared with 105 new highs.

Tech prices held their ground even after the Commerce Department said durable-goods orders rose 3.4% in March, far exceeding market expectations for a 0.7% gain. The increase was paced by orders for cars and business equipment, and follows a 3.8% jump in February orders. Excluding transportation equipment, the increase was 3.3%, the highest rate in almost two years.

While a positive for the economy, the durable goods report joined a lengthening list of economic readings that suggest the U.S. recovery is nearing a pitch that will require Federal Reserve intervention. On Thursday, the government said its producer price index gained 0.5% in March, well above estimates, while first-time jobless claims fell by about 9,000 in the week ended April 17.

Bond traders reacted negatively to Friday morning's numbers, with the 10-year Treasury note tanking almost a full point on the durable goods reading. It was off 17/32 in price to yield 4.45% late in the day.

"The durable goods could hardly have been stronger," said Russell Sheldon, managing director of economic research at BMO Nesbitt Burns. "It's increasingly clear that the Fed is running out of a good story to justify a further delay."

A rate hike would have far worse implications for bonds than stocks, Sheldon argued. He noted that the ratio of earnings to stock prices in the market -- a measure sometimes called earnings yield -- is currently well above the yield on most government bonds.

"Over long periods of time, the two tend to move together," Sheldon said. "There is good space for the bond yield to move up without implying that stocks are overvalued. The huge increase in earnings is more than justified at the current level of stock prices."

There's no doubt the market is concerned about inflation and interest rates increasing; the economic recovery, the upcoming presidential election and world issues are also on investors' minds. Further, "you've still got good earnings news," according to Bill Rhodes, chief investment strategist at Rhodes Analytics. "Companies have pricing power, which they haven't had for many years."

Most importantly, said Rhodes, "People are really focusing on how are they going to deal with inflation and, in particular, interest rates. It's a tug of war between falling fixed income prices and rising stock prices."

Going into next week, Larry Wachtel, market analyst at Wachovia Securities, thinks earnings and interest rate fears will continue to battle for investors' hearts and minds. "You have to keep in mind, the big picture is the problem that the one-year rally got valuations up. There's no valuation give here."

When the overall setting includes low interest rates and low inflation, valuations get in trouble, said Wachtel. "We're bumping up against valuation peaks. It's hard to go forward and you can't follow through to the next day." That's what has been happening in the last couple weeks, particularly given the geopolitical environment, he said.

Shares of Broadcom ( BRCM) also contributed to the Nasdaq's lead with 18.8 million shares traded, compared with a daily average of 8.9 million. The stock closed up $1.41, or 3.5%, at $42.21.

Broadcom had reported late Thursday that sales jumped 75.1% to $573.4 million. The company reported a profit of $39.9 million, from a loss of $67.9 million in the year-earlier period. The company also guided revenue to be up 10% in the June quarter over the prior quarter. That implies sales of around $630.7 million, above the consensus estimate for $591.3 million.

A big NYSE mover was Corning ( GLW), which finished the day up $1.88, or 18.3%, at $12.13. The company had a better-than-expected quarterly report on Friday, posting a profit from a loss a year ago and increasing its second-quarter guidance to above analysts' consensus.

Among other Friday earnings, AT&T Wireless ( AWE) swung to a first-quarter loss of $58 million, or 2 cents a share, from earnings of $135 million, or 5 cents a share. Analysts had been expecting a profit of 1 cent a share in the latest quarter. The company, which is being acquired by Cingular, lost 367,000 subscribers in the first quarter. Shares of AT&T Wireless ended up 6 cents, or 0.4%, at $14.

Wireless network giant Ericsson ( ERICY) swung to a first-quarter profit of about 3 billion kronor ($390 million), or 19 kronor a share, which compared with a loss of 4.3 kronor, or 27 kronor a share, a year ago. Shares were down $2.76, or 8.6%, at $29.49.

Meanwhile, DaimlerChrysler ( DCX) said it will not give any more money to its partner Mitsubishi Motors in Japan, according to media reports. Shares of Mitsubishi Motors, which trades on several international markets, plunged about 25% in Tokyo. But shares of DaimlerChrysler added $2.03, or 4.7%, to $45.27.

The dollar was higher against the euro, while it was relatively flat vs. the Japanese yen.

Overseas stocks were mostly higher Friday, with London's FTSE 100 down 0.04% to 4570 and Germany's Xetra DAX up 1.1% to 4103.62. In Asia, Japan's Nikkei closed up 1.2% to 12,120.6 and Hong Kong's Hang Seng rose 1.8% to 12,383.94.

On Monday, look for earnings from Pulte Homes ( PHM), Tyson Foods ( TSN) and AmeriSourceBergen ( ABC).

In economic news, the government will release new home sales for March. The consensus is for 1.168 million new homes, compared with 1.163 new homes in February.