Stocks started out flat but jumped following a stronger-than-expected reading on new homes sales for July. That report came after a reading showing orders to factories for big-ticket goods rose sharply last month.

The stock market's gains Friday after several stable or positive sessions suggested that Federal Reserve policymakers and stock market investors have perhaps struck a truce — maybe only a tenuous one — with the Fed acknowledging it stands ready to try to fend off a calamitous seizing up of the credit markets and investors willing to focus on readings on the health of the economy before making decisions.

"I think we've stabilized a bit since the Fed has lowered the discount rate," said Nicholas Raich, director of research at National City Private Client Group in Cleveland, referring to the Fed's decision a week ago to cut the interest it charges to lend directly to banks. "That has calmed the market and eased some fears because we have a Fed that is willing to step in and help out."

After weeks of volatility in which triple-digit drops in the Dow became the norm, stocks showed more modest action this week. Investors tried to gain perspective on the troubles in the subprime mortgage market, which serves borrowers with weak credit, and the credit markets as a whole. In addition, moves by some investment banks to invest in subprime lenders and to borrow money from the Fed advanced a sense that the credit market troubles could be contained. A bit of merger news — often a catalyst for sending stocks higher — helped embolden some investors.

The Dow rose 142.99, or 1.08 percent, Friday, closing at 13,378.87.

Broader stock indicators also advanced sharply. The Standard & Poor's 500 index rose 16.87, or 1.15 percent, to 1,479.37. The Nasdaq composite index rose 34.99, or 1.38 percent, to 2,576.69.

For the week, the Dow rose 2.29 percent, its biggest point gain since the week ended April 20. The blue chips now sit about 622 points, or 4.7 percent, below their July 19 record close.

The S&P 500 and the Nasdaq saw their biggest weekly point gains since the weeks ended March 23. The S&P rose 2.31 percent, and the Nasdaq added 2.86 percent.

Bonds had a big week. Investors initially nervous about seemingly any form of risk fled some commercial paper, the bonds that companies sell to get quick cash, and shoehorned into safer short-term Treasurys. As the week continued, they gradually ventured back into longer-duration securities and stocks.

Bonds rose Friday, with the yield on the benchmark 10-year Treasury note falling to 4.62 percent from 4.63 percent late Thursday; bond prices move opposite their yields. The dollar was mixed against other major currencies, while gold prices rose.

Light, sweet crude rose $1.26 to $71.09 per barrel on the New York Mercantile Exchange, helping energy stocks and making Exxon Mobil Corp. one of the biggest gainers among the 30 stocks in the Dow industrials. Exxon rose $1.94, or 2.3 percent, to $85.69. Crude prices had fallen this week after it appeared there was no major damage to oil rigs as Hurricane Dean pushed through Mexico.

In economic news, the Commerce Department said new home sales rose 2.8 percent in July, after falling 4 percent in June. The increase in July lifted sales to a seasonally adjusted annual rate of 870,000 units. A second report showed that orders for durable goods — those expected to last at least three years — jumped 5.9 percent in July, the biggest increase in 10 months.

The housing report appeared to ease concerns that the U.S. economy might tip into recession because of a skidding housing market and tightening access to credit.

However, the upbeat reports could still disappoint investors who had been hoping weak readings would goad the Fed into cutting its benchmark fed funds rate. The stock market tumult in recent weeks and jitters in the credit market had boosted expectations among some investors that the central bank would have to intervene with a cut in the fed funds rate at or even before its Sept. 18 meeting.

The central bank has appeared determined, however, to deploy a measured response and not necessarily give in to a Street looking for a return of easy access to cash.

"It's really day-by-day with all this news," said Raich, referring to economic data and concerns about faltering mortgages and upheaval in the credit markets. He said the latest economic readings boost a sense that the Fed isn't likely to cut rates.

"Obviously the market is adjusting to that probably not occurring. There were fears just a few weeks ago that the U.S. housing woes were going to impact the global environment."

The Chicago Board Options Exchange's volatility index, known as the VIX, and often referred to as the "fear index," has fallen for six sessions, signaling investors are regaining some confidence.

Whether the recent relative calm of the markets holds will likely depend in part on economic data due next week. Minutes from the Fed's next meeting are expected as is an early read on second-quarter gross domestic product. They could support or derail a notion that the economy continues to push ahead despite Wall Street's recent gyrations.

In corporate news, retailer Gap Inc. rose $1.11, or 6.4 percent, to $18.51 after posting a 19 percent rise in quarterly earnings and announced plans for a $1.5 billion share repurchase. Meanwhile, Marvell Technology Group Ltd. fell $2.10, or 11.8 percent, to $15.75 after the integrated circuit maker swung to a second-quarter loss amid steep charges.

Advancing issues outnumbered decliners by more than 3 to 1 on the New York Stock Exchange, where consolidated volume came to a light 2.56 billion shares compared with 3.08 billion shares traded Thursday.

The Russell 2000 index of smaller companies rose 10.68, or 1.35 percent, to 798.93.

Overseas, Britain's FTSE 100 rose 0.37 percent, Germany's DAX index slipped 0.06 percent, and France's CAC-40 rose 0.83 percent. In Asia, Japan's Nikkei stock average closed down 0.41 percent. Hong Kong's Hang Seng Index fell 0.20 percent.

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The Dow Jones industrial average ended the week up 299.79, or 2.29 percent, at 13,378.87. The Standard & Poor's 500 index finished up 33.43, or 2.31 percent, at 1,479.37. The Nasdaq composite index ended up 71.66, or 2.86 percent, at 2,576.69.

The Russell 2000 index finished the week up 12.90, or 1.64 percent, at 798.93.