Stocks closed sharply higher Friday after stronger-than-expected housing and durable goods data overshadowed lingering concerns about the credit markets.
"The data was very encouraging, a step in the right direction," said James Maguire Sr., managing director at LaBranche. "It was something that was long overdue as far as investors' expectations were concerned."
The Dow Jones Industrial Average rose 2.3% for the week, its best showing in four months. The Nasdaq climbed 2.9%, while the S&P 500 gained 2.3%--their best week in five months.
"We saw an extreme representation of buying opportunities, and this is the snap-back rally," said Marc Pado, U.S. market strategist at Cantor Fitzgerald. "We're powering up, we'll sit at a high point here and we'll probably see some sort of a test (to the downside) next week. But we're going to build the base through September, and we should have a very strong fourth quarter."
The rally was broad-based with all of the S&P 500 sectors trading higher. Stocks extended gains after technology shares and the beleaguered financials sector picked up steam in the final minutes of trading. Energy, however, led the charge as the biggest percentage gainer after oil topped $71 a barrel. Volume was light compared to previous weeks.
"When there's light activity like around this time of year, there generally is a bullish bias because the natural tendency is to be a buyer, not a seller," said Jeff deGraaf, head of technical analysis research at ISI. "That's why, historically, August is a bounce month."
The National Association of Realtors said new home sales for July rose 2.8% to 870,000 units, compared with an expected drop of 1.4% to 822,000 units, according to economists polled by CNBC and Dow Jones.
Meanwhile, the Commerce Department said durable goods orders for July rose 5.9%, well above the 1% growth forecasted by a consensus of economists.
"It feels almost like we're in the eye of the hurricane," said Todd Clark, director of stock trading at Nollenberger Capital Partners. "We've seen the front end of the storm and maybe we'll have a quiet week next week but then get slammed by the back end of the storm in September."
On the earnings front, H.J. Heinz said its fiscal first-quarter earnings grew 6%, driven by double-digit growth in ketchup, beans, soups and Smart Ones meals. Heinz reported net income of 63 cents a share, in line with expectations. The ketchup maker also raised its outlook for the full year.
Shares of Marvell Technology Group plunged 11% after the chipmaker posted a quarterly loss on Thursday evening, citing higher research and development costs.
Burger King reported earnings of 26 cents a share for its fourth quarter versus a loss a year earlier, citing strong sales. The world's second-largest hamburger chain said it earned 26 cents a share. Analysts polled by Thomson Financial were expecting earnings of 27 cents a share.
In other earnings news, clothing retailer Gapreported quarterly earnings growth of 27% -- above Wall Street's estimates -- and raised 2007 earnings guidance. The company also said its board approved a $1.5 billion share repurchase program.
Ann Taylor said its second-quarter earnings fell 27%, hurt by lower traffic and higher markdowns to move merchandise. The retailer reported profit of 50 cents a share. That still beat analysts' expectations of 48 cents a share, according to Thomson.
New York light sweet crude futures rose to trade above $71 a barrel after the government said gasoline demand hit a record last week.
Oil companies such as Exxon Mobil climbed with oil prices. Exxon was the biggest boost to the Dow and the S&P, with shares rising 1.9%.
Despite continued worries about tighter credit, the markets have been trading in a much calmer fashion. The CBOE Market Volatility Index (VIX) declined for the sixth straight day and is now well off of its 52-week high of $37.50.