Investors looked past a weak forecast from software maker Oracle (ORCL ) and focused instead on positive economic data that pointed to a turnaround, lifting stocks to finish higher on Friday.
The Dow Jones industrial average ended up 90.09 points, or 0.86%, to 10,607.23. The Nasdaq Composite Index added 14.15 points, or 0.76%, to 1,868.29. The broader Standard & Poor's 500 Index gained 13.10 points, or 1.14%, to 1,166.14.
The reaction of Federal Reserve policymakers to the signs of building strength will be the market's primary focus next week. Wall Street will be watching Tuesday's meeting of the Federal Open Market Committee, the Fed's policy-setting arm. Most market observers expect the FOMC to shift to a neutral stance on interest rate policy from the current easing bias that has been in place since December, 2000.
What will be key, however, is the wording of the rest of the FOMC's policy announcement in terms of hints as to when the Fed may start to reverse the cuts in interest rates of 2001, according to Standard & Poor's research.
On the economic data front, Wednesday brings reports on housing starts and the Treasury budget. Thursday will round out the week with the Consumer Price Index, leading indicators, and the Philadelphia Fed index, among other releases.
In Friday's session, investors reacted to more positive news on the health of the economy. The Federal Reserve said production by the U.S. industry in February recorded its biggest bounce since June, 2000 -- providing further evidence the U.S. economy is rebounding.
"I think it's really surprising to see such a dramatic turnaround and [the news] bodes well for improved profit margins and better corporate earnings," says Jeffrey Kleintop, chief investment strategist at PNC Financial Services Group. Kleintop addded Friday's industrial production numbers support inventory data, released earlier in the week, that showed businesses have gone from liquidating inventory in the fourth quarter to restocking shelves in January.
Output at the nation's factories, mines and utilities rose 0.4% in February. Combined with January's revised 0.2% increase, February marked the first time since August and September of 2000 where there were two straight months of increases in production. The manufacturing sector alone, the largest component in the report, saw a production gain of 0.3%, the same as the revised January figure for the sector.
Also boosting investor sentiment was a report suggesting inflation remains dormant. The producer price index, a gauge of U.S. wholesale prices, edged higher by 0.2% in February, mainly because of rising gasoline prices. The modest rise suggests little evidence that inflationary pressures are building in the economy. Excluding volatile food and energy components, wholesale prices were unchanged in February after declining 0.1% in January.
Meanwhile, U.S. consumer sentiment jumped in March to its highest level since December, 2000, as the labor market improved. The University of Michigan's preliminary consumer sentiment index rose in March to 95.0 from a final reading of 90.7 in February.
Among Friday's stocks in the news, Oracle, after the closing bell on Thursday, posted a dip in quarterly profits and reduced its forecast for the current quarter, citing slack corporate spending on technology.
And Merck (MRK ) on Friday said it yanked the U.S. marketing application for a new arthritis drug, but will re-file the application at an unspecified later date for broader use for the medicine, according to wire reports.
Among the best-performing groups in Friday's session were oil and gas drillers, leisure companies, and makers of agricultural products. Underperforming sectors included Internet software and services, application software, and building products.
Oil futures, meanwhile, ended higher after OPEC, as expected, left production quotas unchanged. The oil cartel, meeting in Austria, is seeking to cement the price of its export basket in the $22-$28 a barrel range and wait for a global economic revival to lift crude demand, according to wire reports.
U.S. Treasuries, spurred by some late-session short-covering, ended solidly higher.
As for Tuesday's Fed policy meeting, any rhetoric that suggests Alan Greenspan & Co. are leaning toward a tightening policy would spark a return of a bearish trend in bonds, according to S&P MMS. Lack of such reference would likely give an oversold bond market a chance to recover, MMS adds.
European markets finished higher. In London, the Financial Times-Stock Exchange 100 index was up 31.30 points, or 0.59%, to 5,292.70, amid uncertainties about economic strength. In France, the CAC 40 added 41.49 points, or 0.91%, at 4,588.33. In Germany, the DAX Index gained 108.48 points, or 2.06%, to 5,385.35, as German January retail sales rose more than expected, and February wholesale prices ticked up only 0.2%.
In Asia, the markets ended mixed. The Nikkei gained 79.19 points, or 0.68%, to 11,648.01, as buy-backs swelled in market heavyweight sectors technology, telecom and automobiles on the back of the weaker Japanese yen. In Hong Kong, the market lost 93.45 points, or 0.83%, to 11,210.25.