Dow Sets New Record on Deal, Jobs News

Takeover news surrounding Yahoo and Reuters, and a lukewarm employment report, helped drive the blue chip index to another peak

Possible takeover bids for Reuters (RTRSY) and Yahoo (YHOO) and a somewhat soft employment report helped drive the Dow Jones Industrial to another new record Friday, keeping the bulls firmly in charge for the fourth straight week.

The Dow Jones industrial average rose 23.24 points, or 0.18%, to a new record close of 13,264.62. The broader S&P 500 index was up 3.23 points, or 0.21%, to 1,505.62. The tech-heavy Nasdaq Composite index added 6.69 points, or 0.26%, to 2,572.15.

Next week's main event is the Federal Reserve's policy meeting Wednesday, though it may not be a big market mover, says Action Economics. Most economists expect the Fed to keep the federal funds target rate at 5.25%, and don't see any big changes in its statement, says Action Economics. Nearly all Fedwatchers believe the FOMC will retain a hawkish tilt by keeping the phrase that the "predominant policy concern remains the risk that inflation will fail to moderate as expected," says Action Economics.

On Friday, investors didn't seem to mind the 88,000 rise in U.S. nonfarm payrolls in April -- below forecasts for 110,000 gain. Payrolls were also revised lower by 26,000 for March and February. The unemployment rate edged up to 4.5% from the cycle low at 4.4%. Average hourly earnings rose a tame 0.2% after a 0.3% gain in March. And the workweek slipped to 33.8 hours from 33.9 hours.

"The data are softer than expected, but won't change outlooks for a steady Fed policy stance next Wednesday, and aren't likely to significantly impact expectations for a hawkish bias toward inflation concerns either," says Action Economics. "This is a friendly report for both stocks and bonds as it reflects an ok jobs report, but not too hot and not too cold."

In deal news, Yahoo shares jumped on news that Microsoft (MSFT) has intensified its pursuit of a deal with Yahoo, asking the company to re-enter formal takeover negotiations, according to the New York Post. Last month, Yahoo was stung by the loss of Internet advertising firm DoubleClick to Google (GOOG), the newspaper reported.

Reuters shares also rose after it confirmed it has received preliminary approach from a third party which may or may not lead to an offer.

Eastman Kodak (EK) shares slumped after the company reported a narrower first-quarter loss of 53 cents per share as cost cuts and lower restructuring charges offset an 8% drop in revenue. It cut its 2007 forecasts for cash generation from its inkjet investment and digital earnings from operations.

Hovnanian Enterprises (HOV) shares fell after the home builder warned that it sees a 30 cents loss per share prior to the effect of land-related charges for the second quarter, wider than prior guidance of 5-20 cents loss.

Sears Holdings (SHLD) lost ground after the retailer said first-quarter same-store sales for Kmart fell 4.7% and Sears domestic same-store sales dropped 2.4%, mainly due to a drop in appliance sales. It's new forecast for first-quarter EPS was below the consensus estimate, and S&P and Goldman Sachs cut their estimates.

A big gainer was Crocs (CROX), which surged almost 20% on heavy volume after the footwear maker posted strong earnings and revenue for the first quarter, and boosted its 2007 outlook. It also set a 2-for-1 stock split.

In the energy markets, June NYMEX crude oil fell $1.30 to $61.89 a barrel, with little news moving prices.

European stock markets finished higher Friday on takeover news. In London, the FTSE-100 index rose 1% to 6,603.7. Germany's DAX index was up 0.54% to 7,516.76. In Paris, the CAC 40 index added 1.01% to 6,068.13.

Asian markets also moved up. In Japan, the market was closed for a holiday. In Hong Kong, the Hang Seng index climbed 0.77% to 20,841.08.

Treasury Market

Treasury yields moved lower as the payrolls report lived up to its softer billing, but still came in shy of median expectations while the component data was not as strong as feared, says Action Economics. This gave bond bulls renewed confidence heading into next week's FOMC meeting, says Action Economics. The benchmark 10-year yield fell to 4.64%.

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