Updated from 4:09 p.m. EDT

Stocks rallied Friday, pushing the Dow Jones Industrial Average to its best week in 19 months, as slower-than-expected economic growth in the second quarter allayed fears of inflation.

The Dow Jones Industrial Average rose 119.27 points, or 1.07%, to 11,219.70, and the S&P 500 was up 15.35 points, or 1.22%, to 1278.55. The Nasdaq Composite rose 39.67 points, or 1.93%, to 2094.14.

For the week, the Dow jumped 352 points, or 3.2%, and the S&P 500 rose 38.5 points, or 3.1%. The Nasdaq added nearly 75 points, or 3.7%, over the five sessions.

Intel ( INTC) and Wal-Mart ( WMT) were the big winners on the Dow, up 4.1% and 2.1%, respectively, on Friday. The Nasdaq's surge was driven by XM Satellite Radio ( XMSR), up 16.4%, and Nvidia ( NVDA), up 10.4%.

"You have to give credit to the market for putting together a strong week amidst so many negative stories," said Barry Hyman, equity market strategist with EKN Financial. "The market still believes and hopes that the end of the interest rate cycle is here and the mid-course correction in the slowing economic growth track will be moderate. After three strong up days in a week, it's telling that there's more excitement about the ability to sustain earnings."

About 1.69 billion shares changed hands on the New York Stock Exchange, where advancers outpaced decliners by a 4-to-1 margin. Volume on the Nasdaq was 1.85 billion shares, and twice as many stocks rose as fell.

The 10-year Treasury bond rose 12/32 in price to yield 4.99%, and the dollar fell against the yen and euro.

According to an advance reading on gross domestic product from the Commerce Department, the U.S. economy grew at a 2.5% rate in the second quarter. On average, economists were expecting 3% growth.

A gauge of inflation contained in the report, the implicit price deflator, was at positive 3.3%, above 3.1% last quarter but below the year-ago reading of 3.5%. The lower-than-expected reading helped ease inflation concerns 11 days ahead of the next Federal Reserve decision on interest rates.

"Overall, this is a soft report," said Ian Shepherdson, chief economist with High Frequency Economics. "We expect an upward revision in due course. Inventories made a much smaller contribution to growth than we expected, too, thanks mostly to an upward revision to the first-quarter inventory number."

To view Farnoosh Torabi's video take on today's market, click here .

Also on the economic front, the Labor Department said its employment cost index rose 0.9% in the second quarter, above the 0.8% forecast. Elsewhere, the University of Michigan revised its consumer sentiment index to 84.7 for July, up from the preliminary reading of 83.0, but down from 84.9 last month.

Oil declined as U.S. Secretary of State Condoleezza Rice pledged to return to the Middle East to pursue a diplomatic settlement in the conflict between Israel and Hezbollah. In Nymex floor trading, September crude lost $1.30 to close at $73.24 a barrel, posting a loss of 1.6% for the week. Gold for August delivery added $2.30 to $634.80 an ounce.

In corporate news, Inco ( N) said its takeover offer for fellow Canadian nickel miner Falconbridge ( FAL) expired overnight without receiving enough shareholder support for its consummation. Inco said it still plans to go ahead with its acquisition by U.S. copper giant Phelps Dodge ( PD).

Inco was higher by $2.50, or 3.4%, to $76.40. Falconbridge rose 36 cents, or 0.7%, to close at $55.02.

Dow component General Motors ( GM) said it sold 2.4 million vehicles worldwide during the second quarter, an increase of 8.7% from the first quarter. The automaker said sales for the year are still down 2.3% from a year ago, in part because of the employee discount program the previous year. GM added 24 cents, or 0.8%, to $32.35.

Among earnings, Chevron ( CVX) reported second-quarter net income of $4.4 billion, or $1.97 a share, up from $3.7 billion and $1.76 a share in the year-ago period. The latest second quarter includes charges of 13 cents a share, making the company's adjusted profit about $2.10 a share. However, analysts were looking for earnings of $2.21. Revenue rose to $52.2 billion from $47.3 billion last year. Chevron sank by $1.68, or 2.5%, to $66.05.

Following Chevron's earnings miss, the Philadelphia Oil Service Sector Index fell 0.6%. The Philadelphia/KBW Bank Sector Index rose 2% after the move in the Treasury market, and the Philadelphia Housing Sector Index was higher by 2.1%.

KLA-Tencor ( KLAC) said fourth-quarter sales rose 18% from a year ago, topping estimates. The chip-equipment maker didn't disclose earnings data due to an ongoing probe of possible stock-options backdating. Shares surged $2.28, or 5.7%, to $42.36. KLA-Tencor's gain powered the Philadelphia Semiconductor Sector Index, which added 3% for the session.

Auto parts maker Lear ( LEA) said its second-quarter loss narrowed to $6.4 million, or 10 cents a share, from $44.4 million, or 66 cents a share, a year ago. Excluding one-time items, the company earned 24 cents in the quarter, missing analysts' forecasts by a penny. Lear slid by $1.25, or 5.2%, to $22.82.

Baker Hughes ( BHI) reported a second-quarter profit of $1.4 billion, or $4.14 a share, while adjusted net of $1.07 a share was well ahead of estimates. The oil services company guided full-year earnings in line with estimates. Baker Hughes lost $2.95, or 3.7%, to $77.90.

McAfee ( MFE) fell sharply after saying late Thursday its review of stock options grants will probably result in a material restatement of past reports. The company also reported weaker-than-expected earnings for its second quarter. McAfee tumbled 7% to $22.35.

Office Depot ( ODP) posted second-quarter net earnings of $118 million, or 41 cents a share, up 18% from the year-ago quarter. Excluding one-time charges, the office products retailer earned 43 cents a share, beating the Thomson First Call average estimate by 3 cents. However, Office Depot missed revenue forecasts, sending the stock down $2.81, or 7.6%, to close at $34.34.

Coventry Health Care ( CVH) saw second-quarter net income rise to $135.5 million, or 84 cents a share, from $129.5 million, or 79 cents a share, a year ago. Results included a penny-a-share loss related to Medicare Part D products. The consensus called for EPS of 82 cents. Coventry was off $2.05, or 3.8%, to $51.86.

The day's ratings moves included Citigroup upgrading automaker DaimlerChrysler ( DCX) to hold from sell. Elsewhere, Banc of America Securities cut Aetna ( AET) to neutral from buy.

DaimlerChrysler gained $1.46, or 2.9%, to $51.58. Aetna was lower by $1.08, or 3.3%, to finish $32.17.

Bristol-Myers Squibb ( BMY) faced both an upgrade and downgrade Friday. HSBC Securities raised its rating for the drugmaker to neutral from underweight, while JPMorgan Chase reduced its rating to neutral from overweight. Shares tacked on 43 cents, or 1.8%, to $24.47.

Overseas markets were mostly higher, with London's FTSE 100 up 0.8% at 5975 and Germany's Xetra DAX adding 0.8% to 5705. In Asia, Japan's Nikkei rose 1.1% overnight to 15,343, and Hong Kong's Hang Seng gained 0.2% to 16,955.

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