Market gains as economic outlook brightens

NEW YORK (Reuters) - The Dow and S&P 500 closed the week with their seventh gain in eight sessions in a turnaround period for stocks that has seen investors' worst fears about the economy start to dissipate.

But the gains were made on the second lightest trading volume of the year so far.

The S&P 500 has rallied nearly 6 percent since the end of August, a month when shares skidded as investors worried that the economy was headed back into recession. The gradual improvement in economic data continued on Friday as U.S. wholesale inventories surged by the largest amount in two years in July.

"That's going to support the probability that the third-quarter GDP is at least going to be a positive number," said Bruce Bittles, chief investment strategist at Robert W. Baird & Co in Nashville. "All of a sudden the numbers started to turn just enough to say that we're not going to have a double dip, and that forced a lot of money back into the market."

Energy companies gained as crude oil futures jumped 3 percent to $76.55 per barrel after the forced shutdown of the biggest pipeline supplying Canadian oil to refineries in the U.S. Midwest and to a key storage hub in Oklahoma. For details see [ID:nSGE689037]. The PHLX oil services sector index <.OSX> gained 2.8 percent.

But the technology sector limited gains and the Nasdaq came under pressure after National Semiconductor Corp and Texas Instruments Inc issued weak quarterly financial targets, highlighting continued stress in that sector. National Semi tumbled 6.4 percent, and TI gave up 0.6 percent.

The Dow Jones industrial average <.DJI> gained 47.53 points, or 0.46 percent, to 10,462.77. The Standard & Poor's 500 Index <.SPX> rose 5.37 points, or 0.49 percent, to 1,109.55. The Nasdaq Composite Index <.IXIC> added 6.28 points, or 0.28 percent, to 2,242.48.

For the week the Dow closed up 0.1 percent, the S&P 500 gained 0.5 percent, while the Nasdaq rose 0.4 percent. The technology heavy Nasdaq has risen for six of the last seven trading days.

The PHLX semiconductor index <.SOX> dropped 1.4 percent. On the Nasdaq, cell phone chip supplier Qualcomm Inc was the biggest drag, falling 1.2 percent to $40.42.

Occidental Petroleum Corp gained 0.8 percent to $78.20 and National Oilwell Varco Inc added 3 percent to $41.10.

Indexes traded in a low-volume, tight range in a week shortened by the Labor Day holiday and with trading desks reduced in numbers because of the Jewish new year celebrations on Thursday and Friday.

Combined volume on the New York Stock Exchange, the American Stock Exchange and Nasdaq was 5.71 billion shares, far below last year's daily average of 9.65 billion.

Stocks remained in the upper end of their trading range of recent months, and analysts said the market lacked a catalyst to move much higher. Technicians are looking at the 1,130 level on the S&P 500 as a potential breakout threshold.

"Nothing is exciting until 1,130 on the S&P 500. That's the number we're trying to push through," said Linda Duessel, market strategist at Federated Investors in Pittsburgh.

Some investors say a breakout through 1,130 could take the S&P 500 up to 1,250 by year's end.

Advancing stocks outnumbered declining ones on the NYSE by a ratio of nearly two to one, while on the Nasdaq, about five stocks rose for every four that fell.

(Reporting by Edward Krudy; Editing by Kenneth Barry)