Stocks closed the week mixed as profit-taking and Fed-driven volatility created seesaw trading action in the major indexes.
The Nasdaq posted a weekly decline of 0.4% -- it's first loss in five weeks -- the S&P 500 gained a fraction and the Dow Jones Industrial Average rose 0.5%. Energy and tech stocks ended the week strong as the downtrodden sectors came back into favor with investors, while consumer stocks lagged.
Stocks ended mixed on Monday, but merger deals sent the Dow to a fresh high as Alcoa , the world's largest aluminum producer, offered $73.25 a share in cash and stock in a hostile takeover attempt of rival Alcan .
"The liquidity and M&A is continuing to drive the market," said Robert Pavlik, chief investment officer at Oaktree Asset Management.
In other merger news Monday, shares of Armor Holdings gained after British defense contractor BAE Systems said it would buy the body armor and Army truck maker for $4.1 billion.
Stocks opened down sharply on Tuesday but recovered to close near the unchanged mark.
"Investors are basically still cautious despite this big run and although we're very overbought, I think the fact that we could get this overbought is bullish in itself," said Bruce Bittles, chief investment strategist at Robert W. Baird.
The technology sector was led higher by Hewlett-Packard, which raised its second-quarter outlook and issued upside guidance for the third quarter. In M&A news, Canadian publisher Thomson was in talks to buy Reuters Group for about $17.6 billion in a cash-and-stock deal which would create the world's largest financial news and data company, the companies said Tuesday.
The Federal Reserve voted to keep interest rates unchanged on Wednesday, pushing the Dow up to a new closing high. The central bank also reiterated its stance that inflation remains the its chief policy concern.
The initial reaction to the Fed decision was negative, but the Dow quickly recovered from a rapid 50-point loss to close higher. The S&P 500 and the Nasdaq also reversed earlier losses to end at 6 1/2-year highs. Tech stocks were weak on Wednesday due to a disappointing outlook from Cisco Systems.
On Thursday, the S&P fell 1.4% and the Dow plunged nearly 150 points as mixed economic data prompted investors to book recent gains.
The blue-chip Dow index posted the largest one day decline since a tumultuous 242-point fall in early March, after the government said Thursday morning the U.S. trade deficit rose to its highest level in six months.
"A day like today was inevitable," said Michael Cuggino, president of Permanent Portfolio Funds. "I would caution investors not to get overly concerned based on today's (economic) statistics."
Stocks bounced back on Friday as financial stocks such as Goldman Sachs were strong after new economic data showed a benign inflation outlook. Exxon Mobil jumped 2% as a rally continued in energy stocks, Friday's top-performing sector.