NEW YORK – An encouraging trade report and signs that a tax cut package would pass the Senate sent stocks to their highest levels in two years Friday. Bond prices fell for another day as investors expected the tax deal to lead to economic growth and higher budget deficits.
The Commerce Department reported that the U.S. trade deficit fell to its lowest level in nine months in October. Growing demand for American goods overseas pushed exports to their highest level in more than two years.
Separately, the Treasury Department said the federal government’s budget shortfall hit $150.4 billion in November. Treasury prices dropped after the report was released, pushing their yields higher. The yield for the 10-year note rose to 3.33 percent, up from 3.21 percent late Thursday.
The Standard & Poor’s 500 index rose 7.40, or 0.6 percent, to 1,240.40. It was the third straight day that the S&P index closed at a new high for the year. The index has gained 11.2 percent this year and is now trading at the same price it did the week before Lehman Brothers filed for bankruptcy in September 2008.
The Dow Jones industrial average rose 40.26, or 0.4 percent, to 11,410.32. General Electric Co. led the 30 stocks that make up the index with a 3.4 percent jump to $17.72. GE said it planned to raise its dividend by 17 percent.
The Nasdaq composite index rose 20.87, or 0.8 percent, to 2,637.54.
Investors were encouraged to see that prospects were improving that the Senate would approve legislation aimed at avoiding sweeping tax increases Jan. 1. Negotiators added a few sweeteners to promote ethanol and other forms of alternative energy. A test vote was set for Monday.
House Democrats have balked at the proposal to extend tax cuts, voting in a closed-door meeting Thursday not to allow the package to reach the floor for a vote without changes to scale back tax cuts for the rich.