Hints that the Federal Reserve was no longer biased towards raising interest rates sparked a strong rally on Wall Street this week, raising investors' hopes that the recent slump had run its course.
While the the Federal Open Market Committee statement on Wednesday was carefully worded, stirring debate about its meaning, the equity market's response was unequivocal.
The S&P 500 index bounced back into positive territory for the year with its biggest weekly rise in four years. The rally pushed the benchmark index above its 30-day moving average, an encouraging technical sign for bulls.
"What the market needed was for the Fed to show some flexibility in these troubling times, and they did just that," said Art Hogan, chief market analyst at Jefferies & Co. "The markets are starting to stabilise and put into perspective some of the concerns that led to the recent sell-off."
By midday, the S&P was 0.1 per cent higher at 1,435.31, its fifth straight day of gains that put it up 3.5 per cent on the week. The Dow Jones Industrial Average rose 0.1 per cent on Friday to 12,474.60.
The recovery came as Blackstone, the buy-out group, prompted reflection on the recent private equity boom by filing for an initial public offering to raise $4bn.
Energy stocks made the biggest gains this week, buoyed by both rising oil prices and broad strength in equities. The S&P Energy index now stands at its highest point since December, some 17 per cent above its low for the year.
Exxon stock surged 7.2 per cent to $74.87 this week while Chevron rose 8.3 per cent to 73.67. The odd one out in the sector was Halliburton, the oil services group, which slid 2.8 per cent to $31.15 after cautioning about weak US demand.
Homebuilders began to make headway on the back of sound housing data. Sales of existing homes and housing starts were both in excess of depressed expectations.
However, concerns about tighter mortgage lending standards hitting demand for homes checked the gains. The S&P Homebuilders index rose 2.4 per cent this week but remains more than 20 per cent off its high for the year. KB Home, which said that it still sees instability in the market, rose 3.2 per cent to $46.79.
Morgan Stanley was the latest investment bank to dispel fears about possible subprime mortgage losses. Shares in the group soared 8.8 per cent to $80.98 after it reported a 70 per cent jump in first-quarter profit.
Meanwhile, beleaguered subprime mortgage group Accredited Home Lenders jumped 9.9 per cent to $11.98 after Citadel, the hedge fund, said it had bought a 4.5 per cent stake in the company.
"When the guy delivering your milk is talking about subprime mortgages it tells you that the problems may have been over-exaggerated," said Mr Hogan. "This is not going to wreak havoc with the financial system."
Technology stocks had a patchy week. The Nasdaq Composite fell 0.1 per cent to 2,448.66 on Friday, up 3.2 per cent on the week.
The sector was lifted by software groups Oracle and Adobe and the flash-memory maker SanDisk, which all reported strong earnings on Monday. Oracle, boosted by reports that it was suing its German rival SAP, looked set to finish the week 9.6 per cent higher at $18.31.
But Motorola's woes eventually soured the mood. The company admitted that performance at its mobile devices division had been "unacceptable" as it gave a profit warning. Shares in the group fell 2 per cent to $17.80.
The troubles dragged down chipmakers, with Broadcom falling 4.9 per cent to $32.46. Palm also suffered losses. The fortunes of the maker of the Treo phone waxed and waned this week as rumours of an impending offer swirled around the market. Motorola was seen as a potential buyer. Palm stock fell from a high of $19.45 to stand 1.3 per cent up on the week at $18.05.
Stock in Amgen and ImClone, the pharmaceutical groups, moved in opposite directions after Amgen reported that it had stopped a trial of a drug for colon cancer. Amgen stock slid 3.9 per cent to $58.11 on Friday while ImClone, the maker of a rival drug for colon cancer, rose 11.7 per cent to $37.84.
Vonage stock plunged 6.2 per cent to $3.80 on Friday after a judge blocked the company from infringing patents owned by Verizon.
