Stocks rallied sharply during the week after the Federal Reserve surprised investors with a deeper-than-expected interest-rate cut.
The Dow Jones Industrial Average and the S&P 500 each ended with weekly gains of 2.8%, the best performance for both closely-watched indexes since March. The Nasdaq Composite was not far behind with a weekly advance of 2.7%.
For the year, the blue chip Dow index has gained 10.9%, the benchmark S&P 500 is up 7.6% and the Nasdaq has advanced 10.6%.
Stocks closed moderately lower on Monday as traders remained cautious ahead of the most anticipated Federal Reserve meeting in years.
"It's been sort of a nervous Monday," said Bob Nunn, chief operating officer at Cohen Specialists. "The market wants to see a 50 basis-point cut and comments that we could see cuts in the future. I suspect we're setting ourselves up for a bit of a disappointment."
The financial sector was one of the the biggest percentage losers due to credit market concerns, while energy stocks rose after oil prices rose above $80 a barrel. Exxon Mobil led gainers as crude oil futures traded higher.
Stocks closed with big gains on Tuesday as investors cheered the Federal Reserve's decision to cut interest rates more deeply than expected.
"The Fed gave us a little more than most of us had expected -- they are looking at the future and the U.S. economy is weakening -- I think that's why equities are responding to the upside," said Robert Doll, global chief investment officer of equities at BlackRock.
The Dow surged 335 points, or 2.5%, the best one-day point gain for the blue-chip index since October 2002.
Turbulent credit markets due to ongoing problems in the home mortgage sector prompted the Fed to lower interest rates by half a percentage point to 4.75%. The last time the U.S. central bank cut rates was June 2003 when Alan Greenspan was chairman.
Stocks closed higher on Wednesday as Wall Street continued to celebrate Tuesday's half-point rate cut and analysts looked to the Fed for further action.
"The Fed movement was psychologically really important for the markets," said Keith Wirtz, chief investment officer with Fifth Third Asset Management. "I think we'll see a series of two or three more rate adjustments down to ensure the credit markets relax a bit."
The rally was broadly based with buying across all of the S&P 500 sectors. Materials, utilities and telecom were the biggest percentage gainers whiel the heavily-weighted financials sector also ended higher.
"After the profit-taking didn't happen this morning, I think the longer we can stay at these levels, the more people you'll have coming in to cover shorts," said Robert Heller, managing director at Chapdelaine Brokerage. "People might start talking about Dow 14,000 again."
Stocks closed lower on Thursday as a surprisingly positive earnings report from Goldman Sachs was offset by record-high crude prices multi-year lows for the U.S. dollar.
"Stocks have rallied, benefiting from the decline in short-term interest rates, but now people are worried about other things like of plunging dollar or soaring commodity prices," said Phil Roth, chief technical analyst with Miller Tabak.
Overall declines were modest, however, in light of recent broad market gains. The dollar sank to a 15-year low against major currencies as the euro rose above $1.40 for the first time, while gold surged to a 28-year high above $730 an ounce.
Fed Chairman Bernanke told Congress subprime delinquencies were likely to rise further but that the Fed was committed to promoting responsible subprime lending.
Stocks traded higher on Friday, helped by a broadly weaker yen and a pair of strong earnings reports.
"With the yen weaker today you're seeing some money flow back into some of the riskier assets, U.S. stocks included," said David Lutz, senior trader at Stifel Nicolaus.
The greenback gained on the yen as traders felt more comfortable putting risky carry trades back on the table, which involve selling the Japanese currency for higher-yielding units. The yen fell to a six-week low against the euro.
Analysts said Tuesday's Fed rate cut took some of the sting from the impact of credit problems on the U.S. economy.
"People think it's OK to take on risk because of what the Fed has done and continue on with carry trade," said Brian Taylor, senior currency trader at M&T Bank in New York.