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Stocks hold steady at open after trade report

October 10, 2009|Associated Press

NEW YORK — The stock market is keeping its momentum going, giving shares their best week in more than two months.

Moderate gains Friday led by healthcare and utility stocks pushed major indexes to their best weekly performance since July. But a rebound in the dollar weighed on energy and material stocks.

Bond prices tumbled, extending the previous day's losses, as the Treasury market struggled to absorb $71 billion of new supply auctioned off this week in the government's ongoing efforts to fund its stimulus programs.

The stock market's seven-month rally was put firmly back on track this week after two down weeks driven by disappointing economic data. Major stock indicators rose 4% for the week.

Investors cheered more signs that the economy is healing, including growth in service industries, a surprise profit from aluminum maker Alcoa and the first gain in retail sales in more than a year.

On Friday, the dollar drew attention as it recovered some of its recent losses against other currencies after Federal Reserve Chairman Ben S. Bernanke reassured markets that the central bank would wind down its extraordinary stimulus measures when the time is right.

Some investors interpreted Bernanke's comments as a sign that the Fed might raise interest rates sooner than expected, which would boost the dollar versus other currencies.

The dollar is a double-edged sword for the stock market. The dollar would benefit from higher interest rates, but if the Fed tightens credit too soon it could choke off an economic recovery. But a continued fall in the dollar, which is more likely with lower interest rates, could trigger inflation.

"What's particularly concerning for investors is if there is a sharp, sustained move [by the dollar] in one direction or another," said Jordan Smyth, managing director at Edgemoor Investment Advisors.

The moderate rise in stocks Friday came two years to the day after the market hit its peak. The Dow is still down 30.4% from its high of 14,164.53, while the Standard & Poor's 500 index is down 31.5% from its peak of 1,565.15.

The Dow rose 78.07 points, or 0.8%, to 9,864.94, its highest close of the year.

The S&P 500 index climbed 6.01 points, or 0.6%, to 1,071.49, and the Nasdaq composite index increased 15.35 points, or 0.7%, to 2,139.28.

For the week, the Dow rose 4%, its biggest gain since the week ended July 24. The S&P 500 index rose 4.5%, its best performance since the week ended July 17.

Bond prices declined sharply as selling that was sparked by a weak auction of 30-year bonds Thursday continued. The 30-year bond fell more than 2 points -- its biggest one-day drop in nearly three months -- sending its yield up to 4.22% from 4.09% late Thursday.

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