The Dow Jones industrial average logged its biggest gain in more than five months, adding 262.73 points, or 2.60%, to 10,368.86. The last time the 30-stock average saw such jump was on Sept. 24, when it rose more than 368 points. The tech-heavy Nasdaq, meanwhile, soared 4.12%, or 71.27 points, to 1,802.76, lifted by good news from the semiconductor sector. The broader Standard & Poor's 500 index marched up 25.06 points, or 2.26%, to 1,131.79.
The major catalyst for the rally was the greater than expected rise in a closely watched gauge of manufacturing activity. The Institute of Supply Management index climbed to 54.7 in February from 49.9 in January, reaching its highest level since July 2000. A reading above 50 indicates economic expansion.
Investors will undoubtedly keep a watchful eye on next week's reports for further signs that the economy is emerging from a downturn. Of most interest will be the February employment report, due out on Friday, as the labor market has been particularly affected by the slump. Economists are expecting the nation's unemployment rate to tick up to 5.8% from 5.6% in January.
Reports on factory orders and inventories, consumer credit, and a revision to fourth quarter productivity are also on tap next week.
After making some cautiously optimistic remarks about the economy in his appearance before the House Feb. 27, Federal Reserve Chairman Alan Greenspan will have a second chance to discuss the subject on Thursday, when he delivers the second leg of his semi-annual monetary policy testimony to the Senate. His assessment of the economy might have been more optimistic and less cautious, notes S&P MMS, had this week's ISM report -- and stronger-than-expected data on revised fourth quarter GDP, vehicle sales, and construction spending -- already been on the table.
Wall Street will also continue to watch earnings reports, although no Dow components are scheduled to post results next week. Stepping up on Tuesday will be drugmaker A.P. Pharma (APPA
) as well as retailers Costco (COST
) and Kohl's (KSS
On Wednesday, reports from biotech firm Genzyme (GENZ
) and chipmaker National Semiconductor (NSM
) are due. Friday will bring numbers from Krispy Kreme (KKD
), the doughnut chain.
Friday's manufacturing numbers eclipsed somewhat disappointing consumer sentiment figures, which are also scrutinized as consumer spending represents a majority of the U.S. economy. The University of Michigan final sentiment reading was little changed at 90.7 for February, compared with a 90.9 preliminary number and 93.0 reading in January. The lower than expected number suggests that concerns about the economy's recovery have taken their toll on consumers.
Before the market opening, a report revealed that U.S. personal income rose 0.4% in January, higher than the 0.2% increase expected, after a downwardly revised 0.3% gain in December. Spending rose 0.4% after an upwardly revised unchanged figure in December. S&P MMS says the numbers continue the trend of better than expected data.
Few major companies reported earnings on Friday. Imax (IMAX
), the maker of film projection and sound equipment, posted fourth quarter earnings per share of $0.63 on a fully diluted basis, versus a loss, also after extraordinary and unusual items, of $1.08 in the prior year period.
Biotech firm Invitrogen Corp.(IVGN
) posted fourth-quarter profit in line with forecasts but it trimmed its growth outlook for the current quarter, blaming a drop in demand from drug discovery companies.
), which makes laboratory equipment, cut its full-year earnings estimates, blaming a weakening demand in the telecommunications and semiconductor markets.
In other corporate news, Sprint Corp. (FON
), the No. 3 U.S. long distance company, says it will raise $1.5 billion. The move is seen as an effort to ease investor worries that Sprint would lose access to short-term loans.
Shares of semiconductor companies were lifted by upbeat comments from Novellus Systems (NVLS
), a chip equipment maker. Richard Hill, the company's chairman and chief executive, told investors in a conference call that "there are signs of the downturn going away," according to wire reports.
Intel Corp., the world's No. 1 chip maker, said China was expected to overtake Japan as its largest Asian customer within two years.
Treasuries suffered steep losses Friday, following a battery of stronger data that brought forward economic recovery hopes. Fed funds futures zipped back to just over 100% odds of a quarter point hike in June, notes S&P MMS, while the strong data prompted upward revisions to first-half GDP forecasts -- and even sparked some calls for a change in the Federal Reserve's policy bias, to a neutral stance, as early as the Mar. 19 Federal Open Market Committee meeting.
European markets ended higher. In London, the FTSE 100 index was up 68 points, or 1.33%, to 5,169 after the CIPS manufacturing index rose to 50.1 in February from 46.5 in January, the first gain in a year. Meanwhile, U.K. consumer credit slowed in January, but mortgage lending rose.
In Germany, the DAX index climbed 58.33 points, or 1.16%, to 5,097.41 as Germany's February purchasing managers index rose to 47.3 from 44.3 in January, domestic machinery orders fell 8% in January and European retail sales fell.
In France, the CAC 40 added 23.43 points, or 0.52%, to 4,486.42 as French consumer confidence fell to -15 in February from -12 in January due to job concerns.
Asian markets ended mixed. In Japan, the Nikkei rose 224.17 points, or 2.12%, to 10,812 on the back of continued technical buy-backs related to new restrictions on short sales, though early strength faded in the afternoon on profit-taking.
In Hong Kong, the Hang Seng lost 57.24 points, or 0.55%, to 10,425.31.