Earnings Optimism Boosts Stocks

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Also on Friday, Boston Fed President Eric Rosengren said market order will restored only when private liquidity takes the place of the liquidity the Fed has supplied. Rosengren said one outcome of the credit crunch is that banks are reluctant to offer any indications that they have weak or troubled balance sheets, which explains why so many are using the Fed's new Term Auction Facility to obtain liquidity.

All eyes were on Citigroup’s earnings release before the start of trading. Citi posted a first-quarter loss of $1.02 per share, vs. $1.01 one year earlier, on a 48% revenue drop. The banking giant noted significant writedowns in subprime related direct exposures in fixed income markets and highly leveraged finance commitments. Citi recorded writedowns and credit costs of $6 billion, which was sharply lower than recent market speculation of writedowns of up to $22 billion.

A strong international business helped Caterpillar do well despite a slowdown in the U.S. Caterpillar announced first-quarter earnings of $1.45 per share, vs. $1.23 one year earlier, on an 18% revenue rise. The equipment maker continues to expect another record year with sales and revenues increasing 5%-10% and EPS increasing 5%-15% from 2007 despite further weakening in North America.

Honeywell reported first-quarter EPS of 85 cents, vs. 66 cents one year earlier, on an 11% revenue rise. Honeywell raised its 2008 sales guidance by $700 million to $36.8-$37.4 billion, and moved EPS guidance to $3.70-$3.80, the high end of its previously stated range.

After the close of trading Thursday, Google dispelled worries that its ad business was slowing down. It reported first-quarter earnings per share of $4.84, vs. $4.43 in the 2007 fourth quarter on a 7% sequential revenue rise. Revenue rose 42% year-over-year. Aggregate paid clicks, which include clicks related to ads served on Google sites and the sites of its AdSense partners, increased approximately 20% over the year-earlier quarter. The company expects to continue to make significant capital expenditures. Its stock was soaring 18% on Friday, leading the S&P Internet Software & Services index to a 12% advance.

In energy markets Friday, May West Texas Intermediate crude oil futures closed at a record $116.88 per barrel in a seesaw session featuring reports Nigerian rebels claimed they sabotaged a Shell Oil crude oil pipeline and threatened further attacks on the country's petroleum industry. Speculators covered shorts before the weekend, which is a standard Friday practice.

Among Friday's other stocks in the news, Capital One Financial (”COF”) reported first-quarter EPS of $1.47, vs. $1.62 one year earlier (including one-time items) as more reserves for credit losses and other factors offset a 14% revenue rise.

Sandisk (”SNDK”) posted first-quarter non-GAAP EPS of 21 cents, vs. 19 cents one year earlier, on an 8% revenue rise. The company says pricing was challenging throughout the quarter due to industry-wide excess supply which hurt product gross margin. It forecasts second-quarter revenue of $875-$950 million, which is seen ahead of current Street views.

Xerox (”XRX”) reported adjusted first-quarter EPS of 27 cents, vs. 24 cents one year earlier, on a 13% revenue rise.

Schlumberger (”SLB”) reported lower-than-expected first-quarter EPS $1.09, vs. 96 cents one year earlier, on a 15% revenue rise.

European indexes finished higher Friday. In London, the FTSE 100 index gained 1.27% to 6,056.50. In Paris, the CAC 40 index climbed 2.05% to 4,961.69. Germany's DAX index added 2.41% to 6,843.08.

Markets in Asia ended mixed Friday. Japan's Nikkei 225 index rose 0.58% to 13,476.45. In Hong Kong, the Hang Seng index fell 0.25% to 24,197.78.

Treasury market

Long-dated Treasuries traded mixed Friday afternoon, consolidating ahead of the weekend after a steep four-day sell-off. Price weakness this week reflected growing sentiment that the economy will start to recover in the second half of the year, supported by many quarterly earnings reports that were not as poor as expected. The 10-year note eased 01/32 to 98-05/32 for a yield of 3.73%. The 30-year bond rose 09/32 to 97-26/32 for a yield of 4.51%.

Andrews is managing editor of the Investing Channel for BusinessWeek.com . Steverman is a reporter for BusinessWeek's Investing channel.