Despite the Middle East conflict, roiling oil prices and a sagging housing market, Wall Street closed out the week on Friday on a high as traders betted the Federal Reserve would pause its rate hike cycle.
Stoking the bets was a government report on Friday which showed a sharper-than-expected deceleration in US economic growth during the second quarter to just 2.5 percent.
In the week to Friday, the Dow Jones Industrial Average climbed 3.2 percent to 11,219.70 while the technology-rich NASDAQ market reversed three consecutive weekly falls, to close up 3.7 percent on the week at 2,094.14.
The broad-market Standard and Poor's 500 added 3.1 percent to 1,278.55.
The International Monetary Fund said on Friday that the US economy is on course for a "soft landing" but that an overvalued property market, sky-high energy prices and rising inflation could all bode ill.
In a review of the world's biggest economy, the IMF said the US continues to be "a key engine of global growth" despite higher Federal Reserve interest rates and oil prices.
Further fueling expectations of a soft landing, the Commerce Department said Friday that US economic growth slowed to 2.5 percent in the three months to last month.
That represented a sharp deceleration from the blistering pace of 5.6 percent notched up over January-March and was much worse than Wall Street's second-quarter forecast of 3.0 percent growth.
The slowdown and downturn in the housing market have raised the stakes for Fed members ahead of their Aug. 8 policy meeting.
The US central bank has already hoisted its fed funds rate 17 straight times to 5.25 percent, and debate is intensifying on its next move, especially against bubbling inflationary pressures.
"The recent data have complicated the FOMC's rate decision on August 8. On the one hand, the economy is clearly slowing, with real GDP growing only 2.5 percent in the second quarter," economists at Goldman Sachs said.
"On the other hand, most FOMC members still seemed comfortable with further tightening at the June 28-29 meeting, and virtually every inflation indicator released since then has indicated acceleration.
"Our call, by the thinnest of margins, is that the committee will tighten one last time. However, this could still easily change given the heavy data load due next week," the Goldman Sachs economists said.
The past week yielded snapshots on growth, the housing market, durable goods orders and consumer confidence, but the focus will shift to new readings on the job market, auto sales, construction spending and the industrial sector in the week ahead.
One of last week's bright spots was the Conference Board's consumer confidence index reading which increased to a better-than-anticipated 106.5, up from 105.4 last month.
Analysts said that this month's non-farm payrolls employment report, due to be released next Friday, would dominate the week's data calendar.
Global Insight economists are calling for the report to show a modest improvement to a monthly rate of 130,000 new jobs, compared with 121,000 in June.
"Earnings growth at 0.3 percent would not aggravate fears of wage inflation, anything higher would do so," they added.
The corporate earnings season will also continue apace with fresh quarterly earnings updates due from United Airlines, Kodak, Time Warner and Goodyear among others following a bumper week of profits from the oil sector.
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