Stocks gained after General Electric boosted its quarterly dividend for the second time this year.
The Dow Jones Industrial Average rose more than 10 points, a day after the blue-chip index ended a couple points lower, while the other major indexes hit two- and three-year highs.
General Electric , United Technologies and Procter & Gamble gained, while Kraft and Coca Cola slipped.
The S&P 500 and the Nasdaq rose slightly. The S&P 500 reached its highest close since September 19, 2008 on Thursday, while the Nasdaq hit its highest close since December 31, 2007.
The CBOE Volatility Index, widely considered the best gauge of fear in the market, rose above 17.
All key S&P 500 sectors advanced, led by health care, utilities, and industrials.
General Electric shares jumped after the company announced it would increase its quarterly dividend by 17 percent to 14 cents a share from 12 cents. The dividend increase was the second for GE this year. (GE is the parent of CNBC).
Also, Wall street braced for indictments in massive insider trading probe, CNBC reported on Friday. A number of arrrests could be made next week, CNBC said.
The dollar was up slightly against a basket of currenciesas the euro fell, after Moody's said on Thursday it may downgrade the ratings of some Portuguese banks. Meanwhile, Gold and silverdeclined in the wake of strong U.S. economic news, and a decision by China to raise bank reserve requirements. Oil prices fluctuated, and were recently down below $88 a barrel.
The lackluster performance of the market in the wake of upbeat economic data released Friday reflected concerns heading into the weekend about European sovereign debt, tensions on the Korean peninsula and the fact it may take longer for Washington to reach a compromise on a tax cut package than first thought, said J.J. Kinahan, chief derivatives strategist at T.D. Ameritrade. Those fears are showing up in the VIX, which was up nearly 1 percent.
"Last Friday, we had a big rally because people thought (a tax cut compromise) was a done deal," Kinahan said. "Now, people aren’t so sure. The market believes it’s going to done, but it’s not an easy process."
Without a major catalyst in the markets this week, stocks have largely been driven by portfolio positioning ahead of expiring futures and options at the end of next week, and ahead of critical economic reports, including data on inflation and retail sales, next week, he added.
"Next week there will be lots of trading, almost every day," Kinahan said.
In addition, "there's a lot of mutual fund money trying to catch up," he said. "I’m of the personal belief we’ll see a rally as this money continues to flow into the market."
In stock news, Standard & Poor's reshuffled the broad S&P 500 index, pulling the New York Times , Eastman Kodak and Office Depot , which all fell after the news. The changes will be effective after the close of trading Friday, December 17.
Netflix , F5 Networks and Newfield Exploration , which will replace the exiting companies, all advanced. Netflix, F5 Networks and Newfield Exploration had been in the S&P MidCap 400.
According to S&P, the companies moving into the S&P 500 have a market cap above $7 billion, while the companies exiting have market caps between $1 billion and $3.5 billion.
Also Cablevision Systems will replace King Pharmaceuticals , which is being acquired by Pfizer.
In other news, Pfizer withdrew a hypertension drug after two people died from liver injuries, and said it was halting clinical trials of the drug.
Shares in TJX resumed trading Friday after the retailer announced that it was shuttering its A.J. Wright discount stores, saying it was cutting 4,400 jobs.
On the M&A front, Community Health Systems made an unsolicited takeover offer for Tenet Healthcare for $3.3 billion, sending the stock soaring more thtan 50 percent. The deal would create the biggest owner of hospital facilities.
And Beckman Coulter skyrocketed in premarket trading after news it was reportedly putting itself up for sale. Beckman makes biomedical testing instrument systems and supplies.
Elsewhere, Procter & Gamble rose slightly in the pre-market after Goldman Sachs upgraded the consumer products giant to "buy" from "neutral," and raised its price target to $75 a share from $71.
On the tech front, National Semiconductor fell to the bottom of the S&P 500 after JPMorgan downgraded the chip maker to "neutral" from "overweight," and lowered its price target to $12.50 a share from $15. National Semi had earlier reported fiscal second-quarter earnings rose 78 percent, more than expected, on strong sales and improving margins. But the company's forecast for revenue this quarter was below forecasts.
Green Mountain Coffee Roasters sank after the coffee company reported a current quarter profit outlook below expectations, and warned of volatile coffee costs in the months ahead.
Shares in United Technologies rose after the diversified manufacturer said its profit could rise 7 percent to 14 percent next year. The company expects strong demand in developing economies to offset a weaker U.S. economy.
Treasurys were likely to remain in focus after the heavy selloff this week.
The Thomson Reuters/University of Michigan Survey of Consumers' preliminary December consumer sentiment index rose to 74.2 from 71.6 in the final November reading.
The trade gap fell to $38.7 billion, down from a revised $44.6 billion in September. Analysts surveyed by Reuters had expected the gap to fall slightly to $43.6 billion. Exports rose 3.2 percent and imports declined slightly on slowing demand for industrial and petroleum products, the Commerce Department said Friday.
Earlier, the market was higher as investors considered the possibility of monetary tightening from China against strong economic data in the region. Both China's import and export data came in stronger than expected in November, giving rise to expectations of interest rate hikes. Later in the day, Chinese officials raised bank reserve requirements in a move to curb inflation.
"There's quite a lot of hesitation in the market, particularly after the figures from China," Ben Critchley, CFD sales trader at IG Index, told CNBC.com.
Investors don't want to be caught on the wrong side of a possible rate hike in China next week, Critchley said.
The U.S. Treasury budget will be out at 2 p.m.
In the U.S., Pimco's Chief Executive Mohamed El-Erian said the bond-fund manager had raised its expectations for growth in the economy. El-Erian told CNBC that the recent compromise on the Bush-era tax extension would help boost the economy for now.
The tax proposal came under fierce criticism from Democrats in the U.S. House of Representatives Thursday. The Senate has scheduled a vote on the measure for Monday.
Asian indexes closed mostly in the red, but Chinese stocks closed firmly in the green after the economic release. European shares ended at their highest close since September 2008, thanks to upbeat consumer sentiment data.
On tap next week:
MONDAY: FedEx's busiest day.
TUESDAY: NFIB small biz index, PPI, retail sales, business inventories, FOMC meeting announcement; before-the-bell earnings from Best Buy.
WEDNESDAY: CPI, credit card default rates, MBA mortgage applications, New York manufacturing survey, industrial production, housing market index, oil inventories; Honeywell's 2011 outlook and Atlanta Fed Pres Lockhart speaks.
THURSDAY: Housing starts, jobless claims, Philadelphia Fed survey; before-the-bell earnings from FedEx, General Mills; after-the-bell earnings from Oracle, Accenture, Research In Motion, and Take-Two.
FRIDAY: Leading indicators, Quadruple witching.
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