Stocks jumped and the dollar rose against the euro, but bonds slid on Friday, as a pick-up in manufacturing in the Midwest bolstered optimism about sturdy US economic growth later this year.
The Dow Jones industrial average and the Standard & Poor's 500-stock index both ended last month with gains for three months in a row for the first time since late 2001. The technology-loaded NASDAQ composite index strung its first four-month winning streak since the second half of 1999, at the height of the tech bubble.
"The market continues to forecast better economic conditions again, and the feeling is that you have to be long stocks," said Peter Cardillo, chief strategist and director of research at Global Partners Securities.
Business expanded in Midwestern states last month for the first time since February, according to the National Association of Purchasing Management-Chicago index, suggesting improvements in manufacturing and the broader economy.
The report, regarded as a precursor to a national manufacturing report tomorrow, added fuel to the rally which has lifted the NASDAQ, S&P 500 and Dow about 25 percent, 20 percent and 17 percent, respectively, since mid-March.
"The Chicago Purchasing Man-agers number is very encouraging because it confirms the post [Iraq] war economic bounce that the market is counting on to sustain this rally," said Milton Ezrati, senior economic strategist at Lord Abbett & Co.
The NASDAQ composite rose 20.96 points, or 1.33 percent, to 1,595.91, ending at its highest level in a year.
The S&P 500 climbed 13.95 points, or 1.47 percent, to 963.59, its highest close since early July. The blue-chip Dow jumped 139.08 points, or 1.60 percent, to 8,850.26, its highest close this year.
For May, the Dow rose 4.4 percent, the S&P 5.10 percent and the NASDAQ gained 8.99 percent.
The last time the NASDAQ notched four straight months of gains was in 1999, when it rose for five months from August to December, according to Market-history.com.
For Dow and S&P, the last time each index posted three straight months of gains was from October to December 2001.
Thirteen shares rose for every 4 that fell on the New York Stock Exchange and the ratio was about 11 to 5 on Nasdaq. Some 1.68 billion shares changed hands on the NYSE and 2.26 billion on NASDAQ. It was the NASDAQ's heaviest trading session of the year.
A settlement in a long-running dispute between AOL Time Warner Inc and Microsoft Corp also boosted the market. AOL rose US$0.37, or 2.5 percent, to US$15.22. Microsoft headed US$0.21 higher to US$24.61.
ImClone Systems Inc surged US$5.04, or 21.4 percent, to US$28.50. Shares rallied as investors looked ahead to a meeting where scientists will present data expected to be very positive about Erbitux, its experimental cancer drug.
McData Corp jumped US$2.39, or 21.5 percent, to US$13.47. The company, which makes switches and software for storage networks, reported a quarterly profit versus a year-earlier loss. Among rivals, Brocade Communications Systems Inc surged 5.7 percent or US$0.33 to US$6.11.
The 10-year US Treasury note slid 6/32 to yield 3.36 percent, up from an intraday low of 3.305 percent and 3.332 percent on Thursday.
The 30-year bond fell 15/32 to yield 4.37 percent, up from 4.34 percent Thursday.
Two-year notes yielded 1.33 percent and five-year notes yielded 2.28 percent, both down slightly.
At the Commodity Exchange August gold closed $5.10 lower to $365.60 an ounce.
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