Stocks Extend Rally

Major indexes finished higher for a fourth day Friday, capping their best week in months

U.S. stocks closed higher for a fourth day on Friday, with Merck (MRK), Pfizer (PFE), Schering-Plough (SGP) and other healthcare issues leading the latest rally. Financials also extended recent gains, offsetting scattered weakness in the energy and tech arenas.

On Friday, the 30-stock Dow Jones industrial average finished higher by 53.92 points, or 0.75%, at 7,223.98. The broad S&P 500 index was up 5.81 points, or 0.77%, at 756.55. The tech-heavy Nasdaq composite index rose 5.40 points, or 0.38%, to 1,431.50. NYSE breadth was 20-11 positive, while Nasdaq breadth was 15-11 positive.

Treasuries headed lower. The dollar index also retreated. Gold futures rose. Oil futures finished weaker.

Economic reports Friday showed a slight rise in consumer sentiment and a narrowing in the U.S. trade gap.

Next week brings data on industrial production, consumer and producer prices, the Philadelphia Fed index. The policy-setting Federal Open Market Committee also meets on Tuesday and Wednesday.

Traders Friday eyed news that Federal Reserve Chairman Ben Bernanke will make an appearance on 60 Minutes Sunday night. The Bernanke appearnace "could be a blessing or a curse for investors as he takes his case to the American public directly," says Action Economics.

Sentiment was lifted early Friday on by a report Chinese Premier Wen Jiabao held out the prospect of more stimulus if needed to attain Beijing's goal of 8% GDP growth.

Traders were encouraged by news the University of Michigan consumer sentiment index was stable in March, rising to 56.6; the U.S. January trade deficit narrowed to $36.3 billion from $39.9 billion in December, and February import prices fell 0.2%.

Stocks were up globally Friday after Chinese Premier Wen Jiabao held out the prospect of extra stimulus spending if needed to hit China's 8% growth goal this year. Reuters said Wen disappointed investors a week ago by failing to announce an increase in the size of the economic stimulus package, which aims to boost domestic demand and so take up the slack left by a free-fall in exports. But he said markets had failed to grasp that the government was already providing relief over and above the stimulus: taxes would be cut by at least 500 billion yuan this year, pensions were going up and teachers' salaries would rise. What's more, the government had kept some powder dry in case the global economic crisis, already the deepest since the 1930s, got even worse. "We have prepared enough ammunition and we can launch new economic stimulus policies at any time," he said.

U.S. Treasury Secretary Timothy Geithner, Bank of England Governor Mervyn King and their Group of 20 counterparts meet near London today having originally intended to push along plans to tighten market regulation. Distracting them is a global economy in freefall, pressuring them to instead focus on ways to revive growth and tackle toxic bank assets, according to a Bloomberg dispatch. The prognosis is worsening and failure to find a cure may disappoint investors as G-20 leaders prepare for their own summit in three weeks.

White House economic adviser Larry Summers Summers underscored that the economic recovery is the single most important U.S. priority, speaking from the Brookings Institute. The former Treasury Secretary under Clinton said that reactivating the capital markets was essential to achieving realistic asset valuations and restarting banks, and that the next economic expansion should be sound and not driven by financial excess. He said it was too earlier to gauge the broader economic impact of the stimulus measures, though the rise in consumer spending was encouraging, also noting that the narrowing of key credit spreads was due to government intervention in those markets. Summers also predicted that the Obama housing plan could save households some $150 bln over the next 5-years.

The G-20 remains divided as European governments rebut U.S. overtures to bolster spending, while President Barack Obama's administration takes heat for lacking the staff to work on an international remedy. That risks an impasse when officials convene Friday night and Saturday at a luxury countryside retreat near Horsham, southern England.

"The Europeans want to use this as a forum to discuss global coordination of regulation, and the Americans are more interested in global coordination of firefighting," said Randal Quarles, a former U.S. Treasury undersecretary and now a managing director at the Carlyle Group in Washington.

Jack Welch, who is regarded as the father of the "shareholder value" movement that has dominated the corporate world for more than 20 years, has said it was "a dumb idea" for executives to focus so heavily on quarterly profits and share price gains. The former General Electric (GE) chief told the Financial Times the emphasis that executives and investors had put on shareholder value, which began gaining popularity after a speech he made in 1981, was misplaced. Welch, whose record at GE encouraged other executives to replicate its consistent returns, said that managers and investors should not set share price increases as their overarching goal.

In economic news Friday, the University of Michigan U.S. consumer sentiment index March final reading improved to 56.6, modestly better than the preliminary 56.2 reading and the 56.0 that markets had expected. This comes after falling almost 5 points to 56.3 reading in February, which almost hit the 28-year low of 55.3 in November. The index was at 69.5 a year ago. The current conditions index fell to 62.3 from 65.5 in February and 84.2 a year ago. Expectations rose to 53.0 from 50.5 and 50.1 in March 2008. The 1-year ahead inflation index accelerated to a 2.2% rate from 1.9% and 4.3% a year ago. The March confidence up-tick was similar to the small gains in other measures for the month.

the U.S. trade deficit narrowed to $36.0 billion in January, from $39.9 billion in December and $59.2 billion a year ago. The deficit was narrower than the $38.3 billion consensus estimate. Exports fell $7.6 billion to $124.9 billion, but imports plunged $11.5 billion to $160.9 billion. The export drop was concentrated in capital goods (down $3.0 billion) and automotive (down $2.2 billion). The import drop was mostly in industrial supplies and materials (down $4.6 billion) and autos ($3.3 billion). Crude oil dropped $4.3 billion, accounting for most of the drop in materials. The deficit is the narrowest since October 2002.

U.S. import prices dipped 0.2% in February, more narrow than the -0.8% that markets had expected and after falling 1.2% in January. Export prices fell 0.1%, and as expected, after a 0.5% increase in January. Excluding petroleum, import prices were down 0.6%. Agricultural exports fell 1.7% over January; excluding agriculture, exports were up 0.1%. On a year-over-year basis, import prices are down 12.8%, and export prices are down 4.5%.

"The price declines weren't as bad as expected, but regardless reflect the deflationary trend in prices resulting from the recession," says Standard & Poor's senior economist Beth Ann Bovino.

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