msnbc.com news services
updated 3/20/2006 9:48:37 AM ET 2006-03-20T14:48:37

Lower oil prices and a rebound in manufacturing activity helped Wall Street extend its rally Friday, lifting the Dow Jones industrial average to a fresh five-year high for the fourth straight session. The broader market chalked up its best weekly gain since January.

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Investors cheered a Federal Reserve report that the nation’s industrial production grew 0.7 percent in February after sliding 0.3 percent the month before, with the onset of cold weather driving an upswing in utilities output.

The promising economic data eclipsed downbeat news from General Motors Corp. , which said its 2005 loss was $2 billion more than originally reported. Insurance firm American International Group Inc. also posted a steep drop in profit due to regulatory charges .

But stocks’ gains were limited as the day’s headlines did little to address Wall Street’s persistent worries about inflation and more interest rate hikes from the Fed, said Ken Tower, chief market strategist for Schwab’s CyberTrader.

“I think the question the market is struggling with is whether we are concerned about inflation and too strong an economy, or if the Fed is raising interest rates too much and cooling things off,” Tower said. “So we have a little pause in the market today as it tries to work this question out.”

The Dow Jones industrial average climbed 26.41 points, or 0.23 percent, Friday to its best close since May 21, 2001. The broader Standard & Poor’s 500-stock index rose 1.92 points, or 0.12 percent, to a fresh five-year high, while the Nasdaq composite index added 6.92 points, or 0.3 percent.

Bonds cooled following this week’s rally, with the yield on the 10-year Treasury note edging up to 4.67 percent from 4.64 percent late Thursday. The dollar was mostly higher against most major currencies, and gold prices inched upward.

Trading was volatile amid sharply higher volume as four types of options and futures contracts expired, known as the quarterly “quadruple witching” day.

Crude futures pulled back from this week’s after the Organization of Petroleum Exporting Countries cut its projected global demand by 110,000 barrels a day. A barrel of light crude fell 81 cents to settle at $62.77 on the New York Mercantile Exchange.

Friday closed a solid week for the market, when traders showed optimism about recent economic data. The S&P 500 and Nasdaq composite indexes chalked up their best weekly gains since January, while the Dow index put on its best weekly performance in almost a month. The Dow rose 1.84 percent, the S&P 500 gained 2 percent and the Nasdaq composite ended the week 1.96 percent higher.

The market weighed a mixed assessment of consumers from the University of Michigan . Its consumer-sentiment index for March came in at 86.7, unchanged from February but below economists’ prediction of 88.

But with few reports to guide it next week, Wall Street will likely focus on energy prices and any clues from companies about their first-quarter results, said Michael Sheldon, chief investment strategist for Spencer Clarke LLC.

“One thing worth noting is that we saw several positive pre-announcements from economically sensitive companies,” such as DuPont Co. and Union Pacific Inc., Sheldon said.

Analysts also said that while the Dow and the S&P 500 are pressing past multiyear highs, the Nasdaq is still about 30 points off its January record of 2,331.36. Whether the tech sector can close that gap and contribute to the market’s gains could determine how long this rally will continue, Tower said.

GM further rattled auto investors with news that its exposure to Delphi Corp.’s bankruptcy could be 56 percent more than originally estimated, and that costs to cover plant closings would be $500 million more. The automaker revised its 2005 loss to $10.6 billion, up $2 billion from its earlier estimate. GM fell $1.09 to $21.13.

AIG’s quarterly profit was a fourth of its year-ago earnings, as it took more than $2 billion in charges to cover a settlement with state and federal regulators. Damage from last year’s hurricanes also hurt its results, the company said. AIG dropped 42 cents to $68.82.

Elsewhere in the sector, The Wall Street Journal said St. Paul Travelers Cos. is negotiating a takeover of Swiss insurance firm Zurich Financial Services . Analysts were skeptic of an outright acquisition and said a merger of equals was more likely. St. Paul lost $.41 to $41.55.

Entertainment company Viacom Inc. is selling the film library of recently acquired DreamWorks SKG Inc. , maker of blockbuster hits like “Gladiator” and “Saving Private Ryan,” for $900 million. Viacom rose 60 cents to $38.97.

Internet search firm Google Inc. expects its 2006 capital expenditures to be significantly greater than the $838.2 million it spent last year, the company said in a regulatory document filed Thursday. Google added $1.02 to $339.79.

Overseas, Japan’s Nikkei stock average gained 1.51 percent. Britain’s FTSE 100 rose 0.1 percent, Germany’s DAX index slipped 0.26 percent and France’s CAC-40 was higher by 0.29 percent.

The Associated Press and Reuters contributed to this report.

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