The Federal Reserve report was light on details, but didn't bring any bad news. Investors were also pleased about quarterly results from Ford Motor Co., American Express Co. and Microsoft Corp.
Those developments cleared the way for a 119-point gain in the Dow Jones industrial average, leaving it down slightly for the week. The Dow and the S&P 500 broke their six-week winning streak, but the Nasdaq extended its string of weekly gains to seven.
The Fed, in outlining the tests' methodology, said the 19 companies that hold one-half of the loans in the U.S. banking system won't be allowed to fail
- even if they fared poorly on the stress tests.
Separately, bank executives were being briefed on their test results in meetings across the country. By law, the banks cannot publicize the results without the government's permission, but Wall Street buzzed with anticipation and most financial stocks rose.
"There are no major shocks in here. That's why the market's holding up well," said Scott Fullman, director of derivatives investment strategy for WJB Capital Group. "It's been hanging over the market for the last few days."
The day was not without volatility, however. After the Fed's release, the stock market at times gave up huge chunks of gains before finishing solidly higher. Financial stocks, as they have been all week, were leading the way.
The Dow rose 119.23, or 1.5 percent, to 8,076.29, after rising by as many as 170 points.
Broader market measures also advanced. The Standard & Poor's 500 index rose 14.31, or 1.7 percent, to 866.23, and the Nasdaq composite index rose 42.08, or 2.6 percent, to 1,694.29.
For the week, the Dow slipped 0.7 percent, the S&P 500 dipped 0.4 percent, and the Nasdaq rose 1.3 percent.
Steve Sachs, director of trading at Rydex Investments, in Rockville, Md., said market has held up well during a week in which about a quarter of the companies in the S&P 500 index have released earnings, including the major banks.
"We are looking for the signs of economic recovery," he said. "The market clearly is comfortable that it sees the signs of economic stability that it needs to see."
Sachs said he wouldn't be surprised to see some retreat in stocks after the major market gauges surged more than 20 percent since the rally began March 10. Stocks are still down by more than 40 percent from their peak in October 2007.
Stocks jumped from the start of trading Friday after Ford's loss wasn't as bad as analysts had forecast. The No. 2 automaker used up much less cash during the first three months of the year than it did in the last quarter of 2008.
The formal results of the stress tests won't be announced until May 4, but investors have been able to quell some of their worries after big banks after largely better-than-expected results this week.
Robert Reynolds, chief executive at Putnam Investments, said Treasury Secretary Tim Geithner's statement Tuesday that "the vast majority" of banks have enough capital hints that the market likely won't be surprised by the grades banks bring home from the stress test.
"I think it will confirm what the market thinks," he said, adding that banks are still troubled and will need time to repair their balance sheets. "I don't think that by any stretch of the imagination it means that we're out of woods."
In earnings news, Ford rose 51 cents, or 11 percent, $5 after reporting that it spent $3.7 billion more than it brought in during the quarter. That amount is far less than the $7.2 billion the company went through in the fourth quarter. The company hasn't taken government loans.
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American Express jumped $4.33, or 20.7 percent, to $25.30 after the credit card lender reported earnings late Thursday that topped Wall Street's expectations, in part because of heavy cost-cutting. The company was by far the biggest gainer among the 30 stocks that form the Dow Jones industrials.
Reports from Microsoft and Amazon.com Inc. propelled the Nasdaq to the best performance among the major indexes. The index is up about 5 percent for the year as investors have bet that technology companies will be quick to bounce back as the economy recovers.
Microsoft rose $1.99, or 10.5 percent, to $20.91 as investors cheered cost cuts that included layoffs. Profits fell 32 percent but were in line with Wall Street estimates.
Amazon rose $3.85, or 4.8 percent, to $84.46 after the online retailer's first-quarter earnings and sales came in ahead of expectations as consumers still spent on books, DVDs and electronics despite the recession.
Energy stocks rose along with the price of crude oil and after oilfield services company Schlumberger Ltd. posted profits that beat Wall Street's expectations. The stock rose $3.12, or 6.7 percent, to $49.73, even as earnings fell about 30 percent because oil and natural gas companies cut back on exploration and drilling.
The Russell 2000 index of smaller companies rose 12.12, or 2.6 percent, to 478.74.
About three stocks rose for every one that fell on the New York Stock Exchange, where consolidated volume came to 6.99 billion shares, up from 6.47 billion shares Thursday.
Bond prices fell, pushing the yield on the 10-year Treasury note up to 2.99 percent from 2.93 percent late Thursday.
The dollar was mostly lower against other major currencies, while gold prices rose. Light, sweet crude jumped $1.93 to $51.55 a barrel even as supplies remain plentiful.
Overseas, Britain's FTSE 100 closed up 3.4 percent as U.S. markets rallied. Germany's DAX index rose 3 percent, and France's CAC-40 rose 3.1 percent. Japan's Nikkei stock average fell 1.6 percent.
The Dow Jones industrial average closed the week down 55.04, or 0.7 percent, at 8,076.29. The Standard & Poor's 500 index fell 3.37, or 0.4 percent, to 866.23. The Nasdaq composite index rose 21.22, or 1.3 percent, to 1,694.29.
The Russell 2000 index, which tracks the performance of small company stocks, fell 0.63, or 0.1 percent, for the week to 478.74.
The Dow Jones U.S. Total Stock Market Index - which measures nearly all U.S.-based companies
- ended at 8,863.06, down 26.58, or 0.3 percent, for the week. A year ago, the index was at 13,990.52.
Press; By TIM PARADIS]
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