updated 12/11/2009 6:12:43 PM ET 2009-12-11T23:12:43

Encouraging news about how consumers feel about the economy and how much they're spending sent stocks higher on Friday.

Major Market Indices

The strong showing in retail sales last month raised hopes that consumers are starting to feel more comfortable opening their wallets after months of building savings. The 1.3 percent increase was more than double the gain that analysts had forecast.

The government's retail report came as a relief to many investors who have been frustrated that consumer spending, a mainstay of the U.S. economy, has remained in a funk even as other parts of the economy recover.

A separate report showing an increase in consumer confidence signaled that spending could continue to rise. The preliminary Reuters/University of Michigan consumer sentiment index increased more than expected in December.

In another welcome sign, the Commerce Department reported a 0.2 percent gain in business inventories in October, breaking a 13-month streak of declines. That's a signal that businesses expect consumers to step up their purchases.

Hopes of an economic rebound have driven stocks sharply higher for nine months, but the advance has slowed in the past month as investors lock in the year's huge returns and question what catalysts there might be to power the market higher next year.

Stephen Wood, chief market strategist at Russell Investments, said the day's reports help confirm that the economy is on the right track.

"We're going from the first global recession in 70 years to a tepid, but very real global growth story," he said.

The Dow Jones industrial average rose 65.67, or 0.6 percent, to 10,471.50. The Standard & Poor's 500 index gained 4.06, or 0.4 percent, to 1,106.41, while the Nasdaq composite index slipped 0.55, or less than 0.1 percent, to 2,190.31.

Stocks and the dollar seesawed during the week as investors tried to determine where the economy and interest rates are headed. After a stronger dollar sent the Dow down 104 points on Tuesday, stocks rebounded in the final three days of the week.

The Dow rose 0.8 percent for the week, its second straight weekly gain. The S&P 500 index rose for a third straight week, edging up less than 0.1 percent. The Nasdaq slipped 0.2 percent for the week.

Friday's gains in stocks came even as the dollar rose. The ICE Futures US dollar index rose 0.7 percent.

For months, stocks and commodities have moved in the opposite direction of the dollar. The dollar has been falling for much of this year as low interest rates make other assets like stocks and commodities more attractive. A weaker dollar makes commodities cheaper for foreign buyers and helps boost the profits at companies that do business overseas.

Gold fell $6.30 to $1,119.80 an ounce. Oil slumped for an eighth day, sliding 67 cents to $69.87 a barrel on the New York Mercantile Exchange.

A steep drop in the number of employers who cut jobs last month and other signs of improvement in the economy have brought expectations that the Federal Reserve will raise interest rates sooner than later. That would boost the dollar and initially hurt stocks as investors look for better returns elsewhere.

Ryan Detrick, senior technical strategist at Schaeffer's Investment Research, expects the stock market will see more days when it rises alongside the dollar because gains in the greenback signal confidence in the U.S. economy is improving. That could trump concerns that the Fed will raise borrowing costs.

"Higher interest rates down the road probably would not derail this bull market mainly because the economy is on better footing than people think," Detrick said.

Next week, investors will be looking to the policy statement that follows a two-day meeting of the Fed's interest rate committee for clues on the direction of interest rates. Reports are also due on housing and industrial production, and companies including Best Buy Co. and FedEx Corp. are scheduled to post quarterly earnings.

Treasury prices mostly fell Friday after the encouraging economic reports weakened demand for safe-haven investments. That pushed yields higher. The yield on the benchmark 10-year Treasury note rose to 3.55 percent from 3.50 percent late Thursday.

Two stocks rose for every one that fell on the New York Stock Exchange, where volume totaled 1 billion shares versus 1.1 billion Thursday.

The Russell 2000 index of smaller companies rose 4.99, or 0.8 percent, to 600.37.

Britain's FTSE 100 rose 0.3 percent, Germany's DAX index gained 0.8 percent, and France's CAC-40 rose 0.1 percent. Japan's Nikkei stock average soared 2.5 percent.

© 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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