Gross domestic product grew at an annual rate of 4.1 percent in the third quarter, the fastest pace in almost two years, and exceeding the 3.6 percent pace reported earlier this month. Business spending was also stronger than previously estimated.
Until recently, investors have viewed positive data as a negative because it suggested that the Federal Reserve would begin to trim its stimulus program. The central bank had said it would start tapering its monthly bond buying when certain economic indicators met its targets.
The Fed, however, said on Wednesday that it would pare its market-friendly monthly asset purchases by $10 billion to $75 billion, starting in January. It also suggested that its key interest rate would stay at rock bottom longer than previously promised.
"If tapering had not been announced, I don't think this news would be as welcomed by the market as it is right now," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York.
"But now, there's no real risk that there will be more tapering any time soon, and on top of that, growth is absolutely stronger than many were expecting."
Fed Chairman Ben Bernanke said that if U.S. job gains continue as expected, then the bond purchases would be cut at a "measured" pace through much of next year, and would probably be wound down "late in the year, certainly not by the middle of the year."
The Dow Jones industrial average (.DJI) rose 42.06 points, or 0.26 percent, to end at 16,221.14. The Standard & Poor's 500 Index (.SPX) gained 8.71 points, or 0.48 percent, to finish at 1,818.31. The Nasdaq Composite Index (.IXIC) climbed 46.61 points, or 1.15 percent, to close at 4,104.74.
Both the Dow and the S&P 500 finished Friday's session at record closing highs. This marked the Dow's third record closing high in a row. Earlier in Friday's session, the Dow set an all-time intraday high at 16,287.84.
For the week, the Dow rose 3 percent, its best week since September, and the S&P 500 gained 2.4 percent, its best week since July. The Nasdaq advanced 2.6 percent.
Indexes pared their gains going into the close because of "quadruple witching," which marked the quarterly expiration and settlement of December contracts for stock options, stock index options, stock index futures and single stock futures. In addition, most U.S. index funds adjusted their portfolios as a result of quarterly rebalancing by index providers.
Massive volatility affected a number of notable names, including FedEx Corp (FDX.N) and Electronics Arts Corp (EA.O), in the final minutes of trading.
About 6.47 billion shares traded on all U.S. platforms, according to BATS exchange data, a rate that was far higher than other sessions this week.
The benchmark S&P 500 has soared more than 27 percent this year and is on track for its best year since 1997. The Fed's aggressive economic stimulus program has been the major catalyst for this year's rally.
The stock of Red Hat Inc (RHT.N) jumped 14.5 percent to $56.10 and was the S&P 500's best percentage gainer after the world's largest commercial distributor of the Linux operating system reported third-quarter results above analysts' estimates and raised its full-year forecast.
Blackberry Ltd (BB.TO)(BBRY.O) reported a massive quarterly loss on Friday due to an inventory writedown and asset-impairment charges. Still, BlackBerry's U.S.-listed shares shot up 15.5 percent to close at $7.22.
Walgreen Co (WAG.N) climbed 3.7 percent to $59.04 after reporting higher first-quarter sales.
Oracle Corp (ORCL.N) fell 0.6 percent to $36.37 after the No. 2 software maker it would buy Responsys Inc (MKTG.O) in a deal valued at $1.5 billion. In contrast, Responsys shares surged 40.3 percent to $27.40.
Jones Group Inc (JNY.N) shares shot up 5.2 percent to $14.87 after the fashion company, whose brands include Nine West, Anne Klein and Stuart Weitzman, said on Thursday that it had agreed to be bought by Sycamore Partners for $1.2 billion.
About 73 percent of stocks traded on the New York Stock Exchange closed higher for the day, while 70 percent of Nasdaq-listed shares ended in positive territory.
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