Blue chips lead rally despite rising yields

Stocks climbed Friday, leaving the Standard & Poor’s 500 index just shy of its record high reached in 2000, as takeover activity and a surprising increase in consumer confidence kept the bulls in charge on Wall Street.

But a jump in long-term Treasury bond yields raised some caution flags. And although blue-chip stocks remain on a hot streak, smaller issues have been struggling.

The Dow Jones industrial average rose 79.81 points, or 0.6%, to an all-time high of 13,556.53, its 24th record close this year.

The S&P; 500 added 10 points, or 0.7%, to 1,522.75 -- a mere 0.3% below the index’s zenith of 1,527.46 on March 24, 2000, at the height of that era’s bull market.

Wall Street’s surge since mid-March has been powered by better-than-expected first-quarter earnings, a rash of takeovers and faith that the U.S. economy, while slowing, won’t fall apart.

The rally also is feeding on itself as sidelined investors give in to the market’s momentum, analysts say.

“I think investors have a sense that they might get left behind” if they don’t get aboard, said Andy Brooks, a trader at T. Rowe Price Group in Baltimore.

The Dow, which rose 1.7% for the week, is up 8.8% year to date. The S&P; 500 is up 7.4% this year after a 1.1% advance this week.

Takeover deals have underpinned the market because the bids suggest there is decent value in current share prices, analysts say.

On Friday, Microsoft agreed to buy online advertising-services firm AQuantive for about $6 billion in cash, or $66.50 a share. AQuantive soared $27.92, or 78%, to $63.79. Microsoft slipped 15 cents to $30.83.

Yahoo rose $1.18 to $29.75 on renewed speculation that Microsoft might make a bid for the Internet portal.

General Electric gained 43 cents to $36.96 on reports that it planned to sell its plastics division to a Saudi Arabian industrial giant for about $11 billion.

Investors also were encouraged by the Reuters/University of Michigan consumer confidence report for May. The preliminary reading on the confidence index was 88.7, up from 87.1 in April.

Rising confidence, despite higher gasoline prices and weakness in home prices, reinforces optimism about the economy, said Marc Pado, U.S. market strategist at brokerage Cantor Fitzgerald. Investors have faith that most consumers “are going to pay their mortgages, and then they’re going to go shopping,” Pado said.

But good news for the economy is bad news for the Treasury bond market. Some bond investors have been hoping to see more weakness in the economy, which could boost the possibility of interest rate cuts by the Federal Reserve in the second half.

Those hopes may be evaporating: The 10-year T-note yield rose to 4.8% on Friday, up from 4.75% on Thursday and the highest in more than three months. The yield has jumped from 4.49% on March 7.

James Sarni, a principal at money manager Payden & Rygel in L.A., said he believed that the economy was in no danger of falling into recession this year, and that interest rates were likely to end the year near current levels.

Higher bond yields may be weighing on real estate investment trust shares, which have tumbled for five sessions. A Bloomberg index of 131 REITs fell 1.2% on Friday and 6.2% for the week.

REIT stocks appeal to many investors for their dividend payments. Rising bond yields compete with those dividends.

Small-company stocks also have weakened recently. The Russell 2,000 index of smaller shares rose 1% on Friday but was down 0.7% for the week after losing 0.4% the previous week.

The Nasdaq composite index, which includes many smaller shares, slipped 0.2% for the week, although it was up 19.07 points, or 0.8%, to 2,558.45 on Friday.

The momentum of big-name stocks may be draining money away from smaller issues, Pado and other analysts said.

Among Friday’s market highlights:

* Many energy stocks hit record highs on expectations that oil prices will remain elevated. Near-term crude futures in New York rose 8 cents to $64.94 a barrel. The price rose 4.1% for the week. Exxon Mobil advanced $1.46, or 1.8%, to $83.26, Chevron rose $1.39 to $82.85 and Apache rallied $1.45 to $77.79.

* Intuit jumped $3.84, or 14%, to $31.56 after the software firm reported quarterly earnings that beat analysts’ estimates.

* Trump Entertainment Resorts soared $2.73, or 21%, to $15.80. The casino and hotel company said would-be suitors had shown interest in the firm, although it didn’t name names.

* 99 Cents Only Stores shot up $1.39, or 10%, to $14.64 after the Commerce-based retailer posted a 31% jump in its fiscal third-quarter earnings. The report had been delayed by stock-option accounting reviews.

* Intel added 47 cents to a 52-week high of $22.70. A Merrill Lynch analyst upgraded the stock to “buy” from “neutral.”

* Record highs were set in the Canadian, Mexican and Brazilian stock markets, adding to their recent gains.

tom.petruno@latimes.com