By Jennifer Coogan
NEW YORK (Reuters) - U.S. blue chips inched up on Friday, capping a rally in which the S&P 500 logged its biggest weekly gain since 2003 on speculation that the Federal Reserve's next move will be an interest rate cut.
The Dow and the S&P were buoyed by a jump in General Motors Corp. shares on speculation that the automaker will not bid for Chrysler and by a gain in energy shares after crude oil futures climbed on a new diplomatic crisis involving Iran.
Stocks had their best day on Wednesday when the Fed left interest rates unchanged and dropped language about possible rate increases, fanning speculation about a cut.
"At this point, everyone assumes the rate cut is coming, so anything that suggests inflation will do some damage," said Joe Saluzzi co-manager of trading at Themis Trading in Chatham, New Jersey. "We're in a fine balancing act between economic growth and inflation."
The Dow Jones industrial average closed up 19.87 points, or 0.16 percent, at 12,481.01. The Standard & Poor's 500 Index finished up 1.57 points, or 0.11 percent, at 1,436.11. The Nasdaq Composite Index finished down 2.81 points, or 0.11 percent, at 2,448.93.
The Nasdaq Stock Market Inc. corrected the closing value for its Composite Index to fix erroneous trades, making the index lower on the day, not higher as originally indicated, a spokesman said.
The Dow finished the week up 3.1 percent and the Nasdaq gained 3.2 percent. The S&P added 3.5 percent, its biggest rise since March 2003.
Despite the strong performance on the week, trading was light, suggesting investors may lack conviction about the market's strength.
Dragging down the Nasdaq were shares of Amgen Inc., which fell after the world's largest biotechnology company canceled a clinical trial involving a colon cancer drug.
Amgen shares dropped 4.1 percent, or $2.45, to $58.02 on the Nasdaq. Shares of ImClone, which makes a competing drug, rose 13.6 percent, or $4.62, to $38.50 on the New York Stock Exchange.
Oil prices rose after Iranian forces seized 15 British Royal Navy sailors and marines on Friday, sparking a diplomatic crisis. Crude futures gained 59 cents to settle at $62.28 a barrel while gasoline futures jumped to a seven-month high, hitting $2.
Higher energy prices increase companies' cost of doing business, while higher gasoline prices squeeze consumers' discretionary income, threatening a drag on corporate profits.
But the rise in oil prices lifted oil company stocks. Shares of Exxon Mobil Corp., another Dow constituent, rose 0.8 percent, or 62 cents, to $74.98 on the New York Stock Exchange. Shares of Chevron Corp. climbed 1.1 percent, or 77 cents, to $73.70 on the NYSE.
GM shares jumped 5.5 percent, or $1.67, to $31.99 as investors speculated that the automaker would be less likely to buy Chrysler. Two private equity firms and Canadian auto parts supplier Magna International Inc. have emerged as the leading candidates for buyers.
Stocks briefly jumped on a report showing an unexpected rise in existing-home sales last month but pared those gains after investors noted that prices have stagnated and the inventory of unsold homes has increased.
The National Association of Realtors reported that existing-home sales increased by a stronger-than-expected 3.9 percent to a 6.69 million-unit annual rate as mild weather spurred home buying. Inventories of unsold homes on the market rose 5.9 percent to 3.748 million units.
Investors are eager for signs of stability in housing following recent turmoil in the subprime mortgage sector, which makes loans to people with weak credit or low income.
Friday's volume was the weakest of the week, with about 1.4 billion shares changing hands on the NYSE -- well below last year's estimated daily average of 1.84 billion. On Nasdaq, about 1.7 billion shares traded, also below last year's daily average of 2.02 billion.
Advancing stocks outnumbered decliners by a ratio of about 4 to 3 on the NYSE and by about 9 to 8 on Nasdaq.
