updated 7/16/2007 9:55:39 AM ET 2007-07-16T13:55:39

Wall Street ended an extraordinary and record-setting week Friday by surging higher again, sending the Standard & Poor’s 500 index past a trading high set in March 2000 and thrusting the Dow Jones industrial past 13,900 for the first time.

Major Market Indices

Both the S&P and the Dow logged record closes for the second straight day and the Dow’s gains put the blue chip index within about 70 points of 14,000. But the technology-laden Nasdaq composite index lagged both in Friday’s session as it has in the broader recovery from the dot-com collapse at the start of the decade.

In a week that saw the Dow swing more than 450 points and rise 283 points in Thursday’s session alone, investors grappled with unease over soured subprime loans and the broader economy before casting off such concerns and bidding stocks higher amid signs consumers might yet again pull through and give Wall Street reason to climb higher.

On Friday, investors still seemed upbeat about earnings and takeover activity and appeared only slightly disappointed by the Commerce Department’s report that retail sales dropped 0.9 percent last month , following a revised 1.5 percent jump in May. The June figure was weaker than anticipated and marked the steepest decline in nearly two years.

“I think investors are overstating their moves on a day-to-day basis but over the long term we continue to trend upward,” said Brian Levitt, corporate economist at OppenheimerFunds Inc. “I think that is reasonable given the strong global quality picture and the strong global growth picture.”

The Dow rose 45.52, or 0.33 percent, to 13,907.25 after reaching a new trading high of 13,932.29.

Relief that Alcoa won’t pursue a deal with Alcan Inc. helped the Dow Friday, as did solid quarterly results from General Electric Co. , which sent the conglomerate’s stock above $40 during trading and to a five-year high.

For the week, the Dow rose 295.57 points, or about 2.2 percent. Its three-day gain following sharp losses Tuesday was the Dow’s biggest percentage increase since May 2005 and its biggest point gain since early 2003.

Broader stock indicators also advanced Friday. The Standard & Poor’s 500 index rose 4.80, or 0.31 percent, to 1,552.50. The index late in Friday’s session set a fresh trading high of 1,555.10, topping a previous record of 1,553.11 set in March 2000. The S&P added 1.4 percent for the week.

The Nasdaq composite index gained 5.27, or 0.20 percent, to 2,707.00 after spending much of the session moderately lower; the week’s gain totaled 1.5 percent. Though the Nasdaq was trading at levels not seen since early 2001, the index remains well short of its closing record of 5,048.62, set in March 2000 when it was bloated by the late 1990s tech boom.

On Friday, an upbeat report on the mood of consumers released after trading began seemed to inject the market with additional confidence. The Reuters/University of Michigan index of consumer sentiment increased to a six-month high of 92.4 for mid-July from 85.3 in June.

The reading followed Thursday’s session in which the stock market surged after strong sales reports from a few U.S. retailers gave investors a reason to be optimistic about consumer spending and the upcoming deluge of second-quarter earnings results.

Investors abroad were also in a buying mood Friday. In European trading, Germany’s DAX index of blue chip stocks hit a new all-time high, breaking through a seven-year-old record. The DAX finished up 0.49 percent. Elsewhere, Britain’s FTSE 100 rose 0.28 percent and France’s CAC-40 rose 0.24 percent.

In Asian trading, Japan’s Nikkei stock average rose 1.42 percent; Hong Kong’s Hang Seng Index rose 1.27 percent to a new record; and China’s often volatile Shanghai Composite Index slipped 0.04 percent.

Treasury bond prices rose, with the yield on the benchmark 10-year note falling to 5.10 percent from 5.13 percent late Thursday. The dollar was mixed against other major currencies and still trading at a record low versus the euro and 26-year low against the British pound. Gold prices fell.

Light, sweet crude rose $1.43 to $73.93 per barrel on the New York Mercantile Exchange.

Buyout activity — or the possibility of further deals — appeared to help buoy stocks Friday and perhaps helped stave off a pullback. Often after big jumps in stocks, investors are tempted to cash in gains and stand back as the market consolidates. But a Standard & Poor’s analyst said that after Rio Tinto’s bid for aluminum producer Alcan beat out Alcoa’s offer, Alcoa is now a more attractive takeover target. Alcan slipped 95 cents to $97.50, while Alcoa jumped $2.06, or 4.6 percent, to $47.35, making it the best performer among the 30 stocks that make up the Dow industrials.

Meanwhile, Energizer Holdings Inc. said it agreed to acquire Playtex Products Inc. for about $1.16 billion. Playtex surged $2.45, or 16 percent, to $17.97, while Energizer rose to an all-time high of $114.17 amid enthusiasm over the deal. The stock finished up 94 cents at $107.67.

But the type of news that aided some of the major indexes Friday also worked against stocks earlier in the week. On Tuesday, stocks fell sharply following lackluster forecasts from retailers such as Home Depot Inc. and Sears Holdings Corp. Concerns about soured loans and other woes in the subprime housing market also dogged Wall Street at times.

“We seem to be having knee-jerk reactions depending on the latest news and that makes sense following a long period of complacency,” Levitt said. “Investors can expect to see some level of volatility despite the fact that broad economic conditions look pretty good.”

He contends further unease about the effect of faltering subprime loans, which are made to those with poor credit, could still upset the markets and that investors should brace for potential bumps on Wall Street.

“We do expect volatility for the remainder of year and we think investors need to be positioning their portfolios so they can absorb some of that volatility.”

But the news Friday appeared to trump longer-term concerns some investors might hold. GE posted a rise in its second-quarter profits that met Street forecasts and said it is ridding itself of its subprime mortgage business. The company also said it was boosting its stock-buyback program. GE rose 50 cents to $39.50.

In other corporate news, Amgen Inc. rose 98 cents to $56.93 after the biotechnology company increased its stock-repurchase program by $5 billion, adding to the $1.5 billion already earmarked for buybacks under a previous plan.

RadioShack Corp. fell $2.12, or 6.5 percent, to $31.75 after an analyst predicted sales growth would prove elusive.

Idenix Pharmaceuticals Inc. plunged $2.22, or 38 percent, to $3.57 after drug regulators suspended clinical study of the biopharmaceutical company’s hepatitis C drug because results so far haven’t merited potential risks of the treatment.

In other economic data, the Commerce Department reported June import prices rose 1 percent in June, and that export prices rose 0.3 percent. The government also reported that inventories held by businesses increased by 0.5 percent in May. The stronger-than-expected increase supported a notion that inventory rebuilding might give a boost to economic growth in the coming months.

The Russell 2000 index of smaller companies rose 0.59, or 0.07 percent, to 855.77.

Volume on the New York Stock Exchange totaled 1.34 billion shares compared with 1.66 billion traded Thursday.

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