A government report showing weak April retail sales was expected by the market, after shares fell sharply Thursday when individual retailers posted bleak monthly sales.
"It seems as though investors are still looking for any reasons to enter this market, and certainly [the Dow's] triple-digit losses is a pretty good reason," said Paul Nolte, director of investments at Hinsdale Associates.
Georges Yared of Yared Research said, "The market just took a healthy dip yesterday. But for today, it was back to the races."
The Dow Jones Industrial Average closed up 111 points at 13,326. For the week, the Dow posted a 0.5% gain.
On Friday, strong gains were seen in shares of Alcoa Inc. , Caterpillar Inc. , 3M Co. , Honeywell International Inc. and Merck Co. Inc. .
Also among blue chips, American International Group rose 0.7% after posting a 29% profit rise, as its property and casualty insurance business avoided big losses and as it maintained premium growth.
"As long as the economic data is not too bad, then investors will remain committed to putting money in the market," said Hinsdale's Nolte. "Money is especially going to [large-capitalization] stocks, where one finds global companies that should benefit from global growth and a weak dollar."
The S&P 500 gained 14.38 points to 1,505.85, while the Nasdaq Composite advanced 28.17 points to 2,561.91. The S&P 500 was unchanged on the week and the Nasdaq dropped 0.4%.
Trading volumes showed 1.412 billion shares exchanging hands on the New York Stock Exchange and 1.799 billion trading on the Nasdaq stock market. Advancing issues outpaced decliners by 25 to 7 on the NYSE and by 5 to 4 on the Nasdaq.
Technology shares found support from an upgrade of chip equipment maker Applied Materials . Its stock rose 3.1% after UBS upgraded the stock to buy from neutral, citing the firm's increased capital spending.
But weighing on the Nasdaq, Amgen dropped 2.2% after being downgraded by four separate brokers on the back of a decision from the U.S. Food and Drug Administration.
An FDA unit has recommended label changes for erythropoiesis stimulating agents, which could have a material impact on Amgen drug Aranesp in chemotherapy-induced anemia. According to Citigroup, the decision puts roughly 22% of Amgen revenue at risk.
Economy back in play
After being set aside during earnings season, economic data are once again in investors' focus. Although the Federal Reserve left interest rates unchanged on Wednesday, it did note slowing economic conditions while maintaining that inflation remained its number one concern.
On that front, at least, Friday's data might be a relief.
Higher energy prices pushed up wholesale prices by 0.7% in April, but core inflation was tame again, the Labor Department reported.
Meanwhile, U.S. retail sales fell a worse-than-expected 0.2% in April, the worst showing in seven months, according to the Commerce Department. The weakness in sales spilled beyond home products to include clothing, sporting goods and restaurants.
According to Ian Shepherdson, chief U.S. economist at High Frequency Economics, even accounting for seasonal trends and an March accounting for the Easter holiday, the overall trend in sales is waning.
"May will likely be a bit better but overall [second-quarter] spending will be much slower than [first quarter's] 3.8%," he said, in a note.
CBOT Holdings , owner of the Chicago Board of Trade, gained 3.4% after Chicago Mercantile Holdings , said Friday it is boosting its bid for its cross-town rival.
CBOT has already agreed to merge with CM while the IntercontinentalExchange has launched an unsolicited offer.
Meanwhile the Deutsche Boerse withdrew a capital raising proposal, saying it has enough financing already to complete a $2.8 billion acquisition of the International Securities Exchange . Banc of America Securities lowered its ISE rating to neutral from buy, citing Deutsche Boerse shareholder concerns and doubts that a better bid will emerge.
Dow Chemical rose almost 1%. The firm and Saudi Aramco are close to signing a $20 billion deal to build a petrochemical plant in Saudi Arabia, the Financial Times reported.
The dollar was weaker against the euro and rose against the yen following the PPI and retail data.
Bonds advanced. The benchmark 10-year Treasury note closed down 7/32 at 98 21/32, yielding 4.670%.
Gold futures rose $5.30 to close at $672.30 an ounce.
Oil futures rose 44 cents to close at $62.37 a barrel. The International Energy Agency lowered its 2007 global oil product demand forecast to 85.7 million barrels of oil a day, down from about 70,000 barrels due to revisions to historical data, mainly in the Middle East.
Alcatel-Lucent jumped 4.4%. As it had earlier indicated, it reported a first-quarter profit decline and forecast second-quarter sales to rise. Credit Suisse upgraded the stock to outperform from neutral, citing improving visibility and incremental cost savings.
Nvidia rose 7.1% after it beat expectations with a 44% profit rise on 24% revenue growth.
Foot Locker dropped 7% after the sneaker retailer cut its earnings forecast, citing a 5.1% decline in same-store sales and additional price markdowns.
By Nick Godt