NEW YORK — The Standard and Poor's 500 edged up to a five-year high Friday, extending a rally that started in January.
The S&P 500 rose 8.54 points to 1,517.93, closing 0.3 percent up for the week. The index is at its highest since November 2007 and has advanced for six weeks, the longest streak of gains since August.
The Dow Jones industrial average rose 48.92 points, or 0.4 percent, to 13,992.97. The Nasdaq composite climbed 28.74 points, or 0.9 percent, to finish the week at 3,193.87.
The Dow had its best January in almost two decades, and closed above 14,000 on Feb. 1 for the first time since 2007. The index is up 6.8 percent so far this year; the S&P 500 is up 6.4 percent.
A last-minute budget deal in Washington to avoid the "fiscal cliff" of tax hikes and spending cuts helped powered the rally, as did as optimism about the housing sector and gradual improvements in the jobs market.
The S&P 500 finished the week higher despite logging its biggest daily decline in almost three months Monday following worrying news from Europe.
The index fell 1.2 percent that day as bond yields in Spain and Italy rose on concern that the region's politicians will drag Europe back into crisis. European Central Bank President Mario Draghi's cautious comments about the region's economy also weighed on markets Thursday.
"Everybody seems to be saying this market needs to correct," said Robert Pavlik, chief market strategist at Banyan Partners. "Nobody wants to be in it, but nobody wants to be out of it."
Largely positive corporate earnings reports and a report that showed that the U.S. trade deficit narrowed sharply in December provided more fuel for the market's advance Friday.
The trade deficit fell nearly 21 percent in December from November to $38.6 billion, the smallest in nearly three years, as exports rose while oil imports plummeted. The smaller trade gap means the economy likely performed better in the final three months of last year than first reported last week.
"The trade balance was surprisingly very good," said Phil Orlando, chief market strategist at Federated Investors.
The government estimated that the U.S. economy contracted at an annual rate of 0.1 percent in the last three months of 2012. Orlando estimates that may now be revised to growth of 0.5 percent.
Shares of LinkedIn, the online professional networking service, jumped $26.39, or 21.3 percent, to $150.40 after the company reported fourth-quarter results late Thursday that beat analysts' forecasts. AOL soared $2.31 to $33.72 after the Internet company said its quarterly revenue grew for the first time in eight years, helped by strength in worldwide advertising.
Currently, analysts are expecting earnings for the fourth quarter of 2012 to rise 6.5 percent for S&P 500 companies, according to data from S&P Capital I&Q. That's an increase from the 2.4 percent growth rate recorded for the preceding quarter.
Stocks have benefited as investors poured a net $4.1 billion into stock mutual funds since the start of the year, according to data provided by Lipper.