With a little help from the US Federal Reserve, Wall Street came out of a two-week slide as investors drew encouragement from the possibility of an end to the central bank's cycle of interest-rate hikes.
The broad market and the main blue-chip index posted modest gains for the week to Friday, although the tech-heavy NASDAQ ended slightly lower.
The Dow Jones Industrial Average climbed 0.9 percent for the week to 10,875.59, while the broad-market Standard and Poor's 500 advanced 0.63 percent to 1,267.32.
The NASDAQ composite, however, edged lower by 0.19 percent for the week to 2,252.48.
A big part of the turnaround on Wall Street was attributed to the Federal Reserve action on Tuesday. Although Fed policymakers lifted rates by 25 basis points for the 13th consecutive time, they hinted that this may be one of the final moves in the current cycle by revamping their policy statement.
"The Fed finally did away with their policy accommodation phrase, in other words, that policy accommodation can be removed at a measured pace," said Michael Sheldon, chief market strategist at Spencer Clarke LLC.
"Instead they said that some measured policy firming is likely. I think investors are likely to take away from this that there is some light at the end of the tunnel," he said.
The specter of higher interest rates has been hanging over Wall Street, say analysts, and this hint could be the spark needed to keep upward momentum.
"With Tuesday's quarter-point hike, the federal funds rate is now much closer to a neutral level than we feel many people realize," economists at Wachovia Securities said in a weekly research report.
"Is the Fed close to done? We think so but we expect two more moves, one at the January 31 FOMC meeting and the other at the March 28 meeting," the report said.
Deutsche Bank economists Peter Hooper and Joseph LaVorgna wrote that the Fed appears to be bringing the US economy to a "soft landing," or cooling inflationary pressures without precipitating a recession.
They wrote that incoming Fed chairman Ben Bernanke "will most likely be inheriting from [Alan] Greenspan an economy that is in the process of landing softly, with output near potential, growth near trend, and inflation close to the desired range."
Al Goldman, chief market strategist at AG Edwards, said the market experienced a modest two-week correction after the main indexes gained between 7.4 and 12.5 percent over a six-week rally, with the pullback less than 1.5 percent.
"That's a trade-off we would take anytime," he said.
"We are very impressed by the modest market giveback after a big rally. The message is that on even small price declines, sidelined cash goes after stocks. This says to us that the bull is alive and well. Fortunately, the economic fundamentals continue to support this opinion," Goldman said.
For the year, the Dow index is up less than one percent, with the S&P gaining 4.6 percent and the NASDAQ 3.5 percent.
Although some traders have been looking for a continuation of the so-called Santa Claus rally, Tom Schrader at Stifel Nicolaus Capital Markets, said: "The majority of the year-end rally has happened."
He thinks that "tax loss selling" and "hesitation" about holiday retail sales could challenge stock indexes for the next week but that bargain-hunting could lift stocks in the final week of the year.
Lynn Reaser, chief economist at Bank of America, said she sees a market-friendly environment as the year winds down.
"The combination of an expected end to Fed tightening, contained inflation and economic growth suggests that equity investors could still unwrap further gains before the year is out," she said.
Bonds firmed over the past week. The yield on the 10-year bond dipped to 4.448 percent from 4.537 percent a week earlier and that on the 30-year bond eased to 4.650 percent from 4.736 percent. Bond yields and prices move in opposite directions.
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