Stocks Recover From Early Weakness And Close Firmly Positive

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With traders expressing renewed optimism about the financial situation in Europe, stocks showed a significant turnaround over the course of the trading day on Friday after coming under pressure in early trading.

The major averages bounced off their early lows and climbed firmly into positive territory as the day progressed. The Dow rose 93.24 points or 0.8 percent to 12,554.20, the Nasdaq advanced 27.40 points or 1 percent to 2,858.42 and the S&P 500 climbed 10.67 points or 0.8 percent to 1,325.66.

The gains extended the upward move seen over the past few days and the major averages all posted strong gains for the week. The Dow jumped 3.6 percent, while the Nasdaq and the S&P surged up by 3 percent and 2.9 percent, respectively.

The early weakness on Wall Street was partly due to waning optimism about the possibility of further stimulus from the Federal Reserve following Fed Chairman Ben Bernanke's testimony before the Joint Economic Committee on Thursday.

While Bernanke said that Fed "remains prepared to take action" if the economic situation worsens, he made no explicit reference to further easing measures.

Disappointing trade data from Germany also contributed to the initial downward move, with a report from the Federal Statistical Office showing a 4.8 percent drop in imports in April.

Selling pressure remained relatively subdued, however, with investors seemingly reluctant to continue selling stocks following the sharp drop seen over the past month.

The subsequent turnaround by the markets was partly due to optimism about the outcome of a weekend meeting of European financial officials, with rumors suggesting that Spain could be in line for a bailout.

Some traders also likely used the early weakness as an opportunity to pick up stocks at reduced levels, doing some bargain hunting after the recent pullback.

In U.S. economic news, the Commerce Department released a report showing that the U.S. trade deficit narrowed to $50.1 billion in April from a revised $52.6 billion in March. Economists had expected the deficit to narrow to $49.3 billion from the $51.8 billion originally reported for the previous month.

The narrower trade deficit for the month came as the value of U.S. imports fell at a faster rate than the value of U.S. exports

A separate report from the Commerce Department showed a slightly bigger than expected increase in wholesale inventories in April along with a notable increase in wholesale sales.

In overseas trading, stock markets across the Asia-Pacific region moved back to the downside on Friday after closing higher in the three previous sessions. Japan's Nikkei 225 Index tumbled by 2.1 percent, while Hong Kong's Hang Seng Index dropped by 0.9 percent.

The major European markets also ended the day in the red but well off their worst levels of the session. While the French CAC 40 Index fell by 0.6 percent, the U.K.'s FTSE 100 Index and the German DAX Index both edged down by 0.2 percent.

In the bond market, treasuries saw early strength but gave up most of their gains over the course of the session. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by 1.7 basis points to 1.637 percent after hitting an early low of 1.562 percent.

Most of the major sectors moved to the upside over the course of the trading day, with health insurance stocks showing a substantial rebound after falling sharply in the previous session. The Morgan Stanley Healthcare Payor Index jumped 4.8 percent and tumbling 5.9 percent on Thursday.

Molina Healthcare (MOH) posted a particularly strong gain, surging up by 26.4 percent after plunging 31 percent on Thursday after withdrawing its full year guidance.

Electronic storage stocks also saw considerable strength on the day, resulting in a 2.1 percent gain by the NYSE Arca Disk Drive Index. Seagate Technology (STX) and STEC (STEC) turned in two of the sector's best performances.

Significant strength was also visible among housing stocks, as reflected by the 1.9 percent gain posted by the Philadelphia Housing Sector Index. Banking, healthcare provider, and airline stocks also posted strong gains on the day.

While developments in Europe are likely to be in focus next week, traders are also likely to keep a close eye on U.S. reports on retail sales, industrial production, and producer and consumer prices.

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