Stocks Finish Higher Ahead of Holiday

Investors weighed reports Friday showing declines in industrial production and the CPI, an uptick in consumer confidence, and news from Citi and BofA

U.S. stocks finished higher Friday, with the broader market outpacing financials led by gains in consumer and industrial issues.

Trading was volatile, rocked by news of additional federal aid to Bank of America (BAC) and Citigroup (C), and economic data showing weakness. Traders cited by Standard & Poor's MarketScope tied some of the volatility to the expiration of equity options.

On Friday, the 30-stock Dow Jones industrial average finished higher by 68.73 points, or 0.84%, at 8,281.22. The broader S&P 500 index gained 6.38 points, or 0.76%, to 850.12. The tech-heavy Nasdaq composite index added 17.49 points, or 1.16%, to 1,529.33.

The U.S. government has agreed to inject $20 billion into Bank of America (BAC) and guarantee losses on over $400 billion in assets of both BofA and Citigroup (C). The federal aid comes as BofA and Citi each posted fourth-quarter losses, and Citigroup said it would separate its traditional banking business from its riskier assets. BofA shares fell 14% Friday, while Citi slid 8%.

Investors also weighed a report showing that the U.S. consumer price index fell 0.7% in December, while the core CPI, which excludes food and energy prices, was flat. Meanwhile, U.S. industrial production plunged 2.0% in December, and the University of Michigan's consumer sentiment index rose in January.

Bonds finished a holiday-shortened session lower, with the yield on the 10-year note rising to 2.324%. Gold futures climbed as the dollar index fell. Crude oil futures were mixed.

U.S. financial markets will be closed Monday in observance of the Martin Luther King, Jr. Day holiday.

Next week's calendar is very light, notes Action Economics, with only housing starts, the NAHB index, and jobless claims on the docket. Much of the focus for the holiday shortened week ahead will be on the transition of government to Barack Obama with Tuesday’s inauguration.

Earnings reports will also be of interest with some 50 members of the S&P 500 index scheduled to announce results, including General Electric (GE), Google (GOOG), Microsoft (MSFT), IBM Corp. (IBM), Johnson & Johnson (JNJ), and United Technologies (UTX).

Shares of Barclays (BCS) skidded over 25% in late trading Friday along with sharp declines in other UK banks. CNBC London reported that bank regulators will be gathering over the weekend to consider another round of capital injections, with Barclays potentially participating for the first time.

Late in Friday's U.S. session, Barclays issued a note stating that it knew of no justification for the fall in the share price and that it expected to report a pretax profit for the year in excess of the estimates of sell-side analysts.

Bank of America said Friday that in view of severe conditions in the markets and the economy, the U.S. government agreed to assist in the firm's acquisition of Merrill Lynch by making a further investment in BofA of $20 billion in preferred stock. The company said the government has also agreed to provide protection against further losses on $118 billion in selected capital markets exposure, primarily from former the Merrill Lynch portfolio. The company also cut its quarterly dividend to 1 cent. BofA posted a 48-cent fourth-quarter loss, vs. 5 cents EPS one year earlier, as a significant increase in provision for credit losses and other expenses offset a 19% revenue rise.

Citigroup announced Friday that it will realign into two businesses, Citicorp and Citi Holdings, to optimize its global businesses for future profitable growth and opportunities. The company posted a fourth-quarter loss of $1.72 per share, vs. a $1.99 loss one year earlier (both from continuing operations) despite a 13% revenue decline. Citigroup said results included $6.1 billion in net credit losses, a $6.0 billion net loan loss reserve build; revenues of $5.6 billion were affected by write-downs and losses in Securities and Banking.

Intel Corp. (INTC) posted fourth-quarter EPS of 4 cents, vs. 38 cents one year earlier, on a 23% revenue decline and a narrowed gross margin. Results include $1 billion negative impact from Intel's previously announced reduction in carrying value of its Clearwire investments. EPS was in line with the Wall Street consensus view. For internal purposes, Intel says it is currently planning for first-quarter revenue in the vicinity of $7 billion. Gross margin percentage is expected to decline to the low 40s, primarily due to higher underutilization charges and 32nm start-up costs.