Stocks continued a solid rally Friday, boosted by falling oil prices and investors who swooped in to snatch up battered financial stocks.
The market shrugged off a dismal confidence reading and a CPI report that showed inflation outside of food and energy is fairly tame. Major indexes were trading in a comfortable range, each posting gains of more than 1 percent.
Economic reports showed that consumer sentiment fell to a 28-year low and consumer prices rose 0.6 percent last month, one-tenth of a percent higher than expected. That was largely due to a 4.4 percent jump in energy prices. Core CPI, which excludes food and energy, ticked up 0.2 percent. CPI rose 4.2 percent from a year earlier; core prices were up 2.3 percent year over year.
"It's not as bad as it looks. It's pretty concentrated in the energy sector ... We know oil is flying through the roof. We knew it was coming," Lindsey Piegza, a market analyst at FTN Financial, told Reuters.
After the CPI report, fed-funds futures pared expectations for an increase in rates to 86 percent from 98 percent before the report.
Oil was off more than $2, trading around $133-$134 a barrel, but was well off its morning lows amid continued unrest in Nigeria and the threat of a strike.
The dollar got a boost from the inflation report and is on track for its best week in over three years ahead of this weekend's meeting of G-8 finance ministers.
Still, Fridays have been tricky lately and not everyone on the trading floor was convinced that optimism would prevail.
"I think we’ve had enough consecutive Fridays where oil has been up" that, by the afternoon "we’re going to see oil turn around spike a little bit higher and the market’s going to sell off," Steve Grasso, a broker at Stuart Frankel, told CNBC.
As for the housing market, foreclosure filings jumped 48 percent in May from a year earlier, according to data firm RealtyTrac. Yet home builders were mostly higher, led by Toll Brothers .
Lots of merger news buzzed around the market this week.
The latest is that Pfizer may bid for Ranbaxy Laboratories, an Indian generic-drug maker, countering a $4.6-billion bid from Japan's Daiichi Sankyo, the Business Standard newspaper reported. Pfizer shares ticked higher.
Lehman Brothers CEO Richard Fuld is actively listening to offers for the beleaguered investment bank, including a possible bid by private-equity firm Blackstone for a 20% to 30% stake, CNBC has learned.
Lehman shares rose more than 6 percent, while large financials in general were popular. Morgan Stanley also posted a strong gain.
This Bud may be for you, but it's not yet clear who you is.
News broke late Thursday that Anheuser-Busch is in preliminary talks with Mexico's Grupo Modelo about a potential deal that could thwart Belgian InBev's unsolicited takeover bid for the brewer.
Finally, a concrete development on the Yahoo front -- Google announced late Thursday a non-exclusive advertising-services agreement with Yahoo. (Hey, at least it was something.) That news came just hours after Microsoft walked away from talks, abandoning its bid for Yahoo. An important antitrust voice in Washington said he would "closely examine" the Google deal.
For those of you keeping score at home, that was four merger stories kicking around this week. Staples on Tuesday confirmed its plans to buy Dutch office-supply rival Corporate Expressfor $2.6 billion.
Financials -- mostly brokerages -- continued to rally, with the S&P financial index up 1.3 percent.
Some weakness persisted in regional banks amid chatter about dividend cuts.
KeyCorp fell more than 2 percent, piling on to its 24-percent decline from Thursday, after the Midwest bank said it raised $1.65 billion in a stock offering to raise caital, 10 percent more than it had expected. The news comes a day after the bank cut its dividend in half and announced a big charge after losing a tax case.
Fifth Third was off a whopping 12 percent after an analyst downgraded the stock, saying it may be the next bank to slash its dividend and raise capital.
Wachovia Bank skidded more than 6 percent and National City dropped more than 4 percent.
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