Stocks ended higher as investors widely expected the Federal Reserve to cut interest rates, but gains were tempered due to uncertainty about the magnitude of easing.
The Dow Jones Industrial Average posted a weekly gain of 2.5%, the S&P 500 rose 2.1% and the Nasdaq Composite advanced 1.4%.
For the year, the blue chip Dow index remains up 7.9%, the benchmark S&P 500 is up 4.6% and the Nasdaq has gained 7.7%.
Stocks ended a seesaw trading session mixed on Monday as a rally in the tech sector was offset by uncertainty about the future of the U.S. economy.
"People are throwing around the recession word and acting like it's a foregone conclusion, whereas a few weeks ago they wouldn't have," said Dan McMahon, head of listed trading at CIBC World Markets. "There is just a lot of concern about the direction of the U.S. economy."
Market strategists and economists continued to debate the possibility the U.S. may be headed toward an economic recession.
"More than likely we will avoid a recession," said Jim O'Sullivan, senior economist at UBS. "The question now is whether the Fed will cut by 25 or 50 basis points ... that's certainly the debate now. We still say the odds favor a 25 basis point cut."
Tech giant Intel raised revenue guidance, sending shares of the world's biggest chip company higher. Intel announced third-quarter revenue would be between $9.4 billion and $9.8 billion on stronger-than-expected worldwide demand.
The sixth anniversary of the Sept. 11 terrorist attacks, stocks closed sharply higher on Tuesday on broad expectations for a Fed rate cut.
"What you're seeing is people looking past the Fed's decision," said Doug Altabef, managing director at Matrix Asset Advisors. "They're anticipating some easing and starting to focus on the half-full glass."
In a speech in Berlin, Federal Reserve Chairman Ben Bernanke said the underlying causes of a global savings glut are likely to remain in place, and he indicated foreign appetite for U.S. debt may wane.
Exxon Mobil led gainers as crude oil futures traded higher.
Stocks closed a light-volume session lower on Wednesday amid uncertainty regarding the upcoming Federal Reserve interest rate policy meeting.
"The bottom line is the Fed has to ease, and ease aggressively," said Bill Strazzullo, chief market strategist at Bell Curve Trading. "The market is telling us it needs easing."
"It's like the Fed hypnotized us over the last few days," said Jim Iuorio, director at TJM Institutional Services. "We had five Fed speeches recently that didn't say anything about a 50-basis-point ease, which is what the market really wants. But somehow they've convinced everyone just to be calm."
Volume was light, with many of the S&P 500 sectors moving just above and below flat-level throughout the session. Energy led the buying as the biggest percentage gainer by far after crude oil briefly rose above $80 a barrel.
Consumer staples stocks traded higher as worries about a recession unnerved investors, with Proctor & Gamble closing at a new all-time high.
Stocks closed higher on Thursday on solid economic data and signals of a recovery in the wobbly credit markets.
"The market is getting some encouragement from some calming down on the credit market side," said Todd Clark, director of stock trading at Nollenberger Capital Partners. "You see that the long bond is down about a point, which shows a little less fear. There's a lot of commercial paper that was supposed to be rolled (over) this week, it looks like it's getting done."
Financial stocks gained on news of a financing deal for Countrywide Financial, the nation's largest mortgage broker, which said it has lined up $12 billion of secured financing to help cope with a housing slowdown.
Solid employment data also added to positive market sentiment.
Stocks closed slightly higher on Friday, but gains were held in check due to more credit market worries and Fed uncertainty. The major indexes pulled back from morning losses to finish a touch above the flat line.
"I think the market is on edge and probably will continue to be through next Tuesday," said Mike Burnick, director of research at the Sovereign Society. "The retail sales report today was another nail in the coffin that the economy is slowing, so I think the Fed is pretty much backed into a corner."
Retail sales rose 0.3% in August, lower than the 0.5% increase economists were expecting, according to a Dow Jones survey.
Tech shares were pressured by an analyst's downgrade of Intel.