U.S. stocks rally on bank earnings

NEW YORK (MarketWatch) � U.S. stocks rose sharply Friday, lifting the Dow industrials and S&P 500 into positive terrain for the week, as bank shares rallied after J.P. Morgan Chase & Co.�s second-quarter results.

�They are the single best bank, not only domestically but globally,� said Chip Cobb, portfolio manager at BMT Asset Management in Bryn Mawr, Penn., referring to J.P. Morgan.

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Latest Chinese GDP data shows that growth has decelerated to its slowest pace since the global financial crisis.

The Dow Jones Industrial Average DJIA �rose 203.82 points, or 1.6%, to 12,777.09. The index is up 0.04% from last Friday�s close.

�We�re certainly not looking at boom times, but we still are seeing consumer spending. At some point, the consumer needs to make some purchases to get on with his or her life, and we�re seeing signs of that.�

Stuart Freeman, Wells Fargo Advisors

All but one of the Dow�s 30 components rose, led by J.P. Morgan Chase JPM , up 6% after the nation�s largest bank reported a $5 billion profit in the second quarter, which included a $4.4 billion trading loss on synthetic credit derivatives. Read more here.

�Will they get this behind them? There is no doubt about it. But it is a black eye; they were viewed as above this,� said Cobb of J.P. Morgan Chase�s trading loss.

The sole blue-chip decliner, Hewlett-Packard Co. HPQ �fell 1.9% after a J.P. Morgan analyst reiterated an underweight rating on shares of the maker of personal computers and printers. A warning late Thursday from printer manufacturer Lexmark International Inc. LXK �that it would miss second-quarter expectations did not help H-P�s cause.

Also erasing its weekly decline, the S&P 500 index SPX �climbed 22.01 points, or 1.7%, to 1,356.77, with finance companies pacing the gains that included all 10 of the index�s sectors and left it up 0.2% from last Friday�s finish.

Wells Fargo & Co. WFC �rallied 3.2% after reporting a 17% rise in profit. Phillips 66 PSX �advanced 5.9% after Warren Buffett said Berkshire Hathaway Inc. had invested in the refiner.

The Nasdaq Composite COMP �advanced 42.28 points, or 1.5%, to 2,908.47, off 1% for the week.

For every stock falling five rose on the New York Stock Exchange, where nearly 683 million shares traded. Composite volume neared 3.2 billion.

Friday�s rally � Wall Street�s best session of the month � halted a six-session losing stretch for the Dow industrials and S&P 500, and a five-day down run for the Nasdaq.

Bouncing back

Crude-oil futures CLQ2 �added $1.02 to $87.10 a barrel, up 3.1% for the week. Gold futures GCQ2 �rose 1.7% to close at $1,592 an ounce, with the metal up 1.7% from the week-ago close.

The dollar DXY �fell against other currencies, including the euro EURUSD . Treasury prices fell, with the yield on the benchmark 10-year note 10_YEAR �used in determining mortgage rates and other consumer loans rising to 1.504%.

Data on Friday showed that the University of Michigan-Thomson Reuters consumer sentiment index fell to an initial reading of 72 in July from 73.2 in June. Read more on consumer sentiment.

The confidence number was off some from the prior month, but still �way off the bottoms,� said Stuart Freeman, chief equity strategist at Wells Fargo Advisors in St. Louis. �We�re certainly not looking at boom times, but we still are seeing consumer spending. At some point, the consumer needs to make some purchases to get on with his or her life, and we�re seeing signs of that,� he added.

Cobb at BMT Asset Management said the end-of-week rally has much to do with the recent market correction, which had the Dow and S&P 500 down for six sessions, leaving equities priced at more compelling levels.

�It�s more of a valuation standpoint; a number of companies have come down to some pretty attractive levels. You eventually have to put some money to work.�

Ahead of the opening bell, China said its economy expanded 7.6% in the second quarter year-over-year, its slowest pace in three years, with the data seen as boosting the chances that the nation would increase stimulus to ensure an economic bounce back in the latter half of the year. Read more on China GDP.

�Some people are going to point to China, some to the possibility of more stimulus, but I think it�s more of a trading issue, meaning we�ve watched the market pull back a bit,� Cobb added.