(RTTNews) - Stocks turned in a standout performance on Friday, as a sharp drop in oil prices prompted investors to look for bargains. Strength in the financial sector also contributed to the buying interest on Wall Street.

Investors were encouraged when oil prices pulled back sharply during the day, more than offsetting the substantial price increase that was seen in the previous session. The pullback by the price of oil was partly due to a rebound in the value of the U.S. dollar.

After ending Thursday’s trading up $5.62 at $121.18 a barrel, crude for October delivery closed down $6.59 at $114.59 a barrel. While the price decrease offset yesterday’s increase, the price of oil still closed higher for the week.

Meanwhile, state-run Korea Development Bank is considering the acquisition of Lehman Brothers (LEH), according to a Reuters report on Friday. The speculation contributed to the positive sentiment on Wall Street.

Korea Development Bank, or KDB, reportedly said it is open to mergers or acquisitions of both domestic and foreign companies to cover up its weak areas as the Korean government intends to privatize the company by 2012.

Lehman was in the news earlier this week after it was reportedly considering the sale of all or part of its investment management business, including the Neuberger Berman unit. The company’s investment management business is estimated to be worth about $8 billion to $10 billion. Lehman ended the session up 5 percent.

In other merger and acquisition news, King Pharmaceuticals (KG) announced that it has submitted a proposal to acquire Alpharma (ALO) for $33 per share in cash. The proposed price implies a total equity value of approximately $1.4 billion for 100 percent of the fully diluted share capital and an enterprise value of approximately $1.2 billion.

Brian Markison, CEO of King Pharma said, “The transaction would create a diversified specialty pharmaceutical company with greater commercialization capabilities, an expanded portfolio of pain management products and a strengthened pipeline which would include multiple platform technologies.”

Additionally, CME Group (CME) finalized its purchase of Nymex Holdings (NMX). CME Group Class A common stock will continue to trade on the Nasdaq under the ticker symbol “CME.” Nymex Holdings common stock is being delisted and will no longer trade on the NYSE.

The companies also announced they will begin integrating Nymex’ business operations in order to achieve about $60 million in expected cost synergies.

Elsewhere, telecom services provider Verizon Communications (VZ) is close to agreeing with Internet giant Google Inc. (GOOG) on a wide-ranging partnership deal, the Wall Street Journal said Friday, citing familiar sources. However, the two companies need to overcome some final hindrances.

Verizon and Google hope to conclude their discussions in the next few weeks. A positive outcome from the discussions would make Google the default search provider on Verizon devices and give the internet company a share of the ad revenue.

On the economic front, Federal Reserve Chairman Ben Bernanke spoke at the Federal Reserve Bank of Kansas City’s Annual Economic Symposium in Jackson Hole, Wyoming earlier in the day, calling the current policy and economic environment “one of the most challenging” in recent memory.

“Although we have seen improved functioning in some markets, the financial storm that reached gale force some weeks before our last meeting here in Jackson Hole has not yet subsided, and its effects on the broader economy are becoming apparent in the form of softening economic activity and rising unemployment.” Bernanke said.

The major averages saw notable gains throughout the session, closing just below their intraday highs. The Dow closed up 197.85 points or 1.7 percent at 11,628.06, the Nasdaq closed up 34.33 points or 1.4 percent at 2,414.71 and the S&P 500 closed up 14.47 points or 1.1 percent at 1,292.19.

With today’s gains, the major averages partly offset the steep losses that were seen earlier in the week, although they still posted weekly losses. The Nasdaq showed a notable loss, ending the week down 1.5 percent, while the Dow and the S&P 500 posted weekly losses of 0.3 percent and 0.5 percent, respectively.

Sector News

Airline stocks are turning in some of the best performances, boosted by the sharp drop in oil prices. The Amex Airline Index closed up 8.2 percent, ending its recent downtrend. The index had been trending lower for the past four sessions, setting a three-week closing low on Thursday.

Within the airline sector, Continental Airlines (CAL) and UAL Corp. (UAUA) were two of the biggest gainers. Continental Airlines closed up 10.6 percent, compared to a 12.3 percent gain by UAL. Earlier in the day, the Federal Aviation Administration proposed an $18,000 penalty for UAL’s United Airlines for two maintenance violations that occurred before a jet skidded off of a runway in February.

Financial stocks saw significant buying interest as well, boosted by the strength in Lehman Brothers. The Amex Securities Broker/Dealer Index ended the session up 3.3 percent, reversing the decline seen in the previous session. The S&P Bank Index closed up 2.8 percent.

Nonetheless, Freddie Mac (FRE) and Fannie Mae (FNM) saw a volatile trading session after Moody’s Investors Service downgraded its ratings on the preferred stock the mortgage backers. Freddie Mac ended the day down 11.1 percent, while Fannie Mae closed up 3.1 percent.

Other stocks that saw considerable strength include real estate, disk drive and retail stocks. The Morgan Stanley REIT closed up 3.5 percent, the Amex Disk Drive Index closed up 2.9 percent and the S&P Retail Index closed up 2.6 percent.

On the other hand, most resource stocks saw considerable weakness amid a drop in commodity prices. Gold stocks saw some of the most notable declines, with the Amex Gold Bugs Index falling 2.9 percent. Gold for December delivery closed down $5.50 at $833.50 an ounce.

Natural gas, oil, and oil service stocks closed lower as well. The Amex Natural Gas Index closed down 2.3 percent, the Amex Oil Index closed down 1.6 percent and the Philadelphia Oil Service Index closed down 1.8 percent.

Dow Components

A vast majority of the Dow components ended Friday’s session with substantial gains, sending the blue chip index sharply higher. Of the 30 stocks that make up the Dow, only 2 ended the session lower.

Financial stocks led the way, including American Express (AXP), which ended the session up 4.8 percent. Citigroup (C), JP Morgan Chase (JPM) and Bank of America (BAC) all saw gains as well. Citigroup closed up 3.8 percent, while JP Morgan Chase ended the session 3.9 percent higher. Bank of America saw a gain of 4 percent.

Boeing (BA) also posted a substantial gain, boosted by the sharp drop in oil prices. Shares of the airplane manufacturer climbed 3.2 percent, adding to gains posted in the previous two sessions.

Earlier in the day, Boeing said it is considering bailing out of the competition for a $35 billion contract to build aerial refueling tankers for the Air Force if the Pentagon does not allow it an additional four months to prepare its offer.

General Motors (GM) saw significant buying interest as well, also boosted by the drop in oil prices. The automaker’s stock moved 5.2 percent higher, reversing the loss posted in the previous session.

Other Dow components that showed notable strength include United Technologies (UTX), Proctor & Gamble (PG) and Microsoft (MSFT). United Technologies closed up 2.8 percent, while Proctor & Gamble ended the session 2.5 percent higher. Microsoft climbed 2.4 percent.

On the other hand, oil producers Exxon Mobil (XOM) and Chevron (CVX) saw modest declines. Exxon Mobil closed down 0.1 percent, compared to a 0.5 percent drop by Chevron.

Other Markets

Stock markets across the Asia-Pacific region closed mixed on Friday after Wall Street finished mixed overnight. The Hong Kong market remained closed on account of a typhoon warning. The Australian market rose, led by resource stock, while the Japanese market fell to its lowest level in nearly five months. The Japanese stock market closed lower for the fourth straight trading session, with the benchmark Nikkei 225 Index ending the day down 0.7 percent.

Meanwhile, the major European markets moved to the upside on Friday. While the French CAC 40 Index rose 2.2 percent, the German DAX Index saw a gain of 1.7 percent. The U.K.’s FTSE 100 Index ended the day up 2.5 percent.

In the bond markets, treasuries ended Friday’s session with notable losses. The benchmark ten-year note dropped sharply through the first two hours of the session, after which it traded in a loose range for the remainder of the day. Subsequently, the yield on the ten-year note closed up 2.9 basis points at 3.867 percent.

Looking Ahead

Looking ahead to next week, there are several economic reports that may influence the markets, including several reports issued by the Department of Commerce. The Commerce Department will issue its report on durable goods, its preliminary GDP data and its personal income and spending report during the week.

Additionally, the Conference Board will release the results of its consumer sentiment survey, while the National Association of Purchasing Management - Chicago will release the results of its survey on the business conditions in the Chicago area.

In Fed news, the Federal Reserve will release the minutes from its previous meeting. Investors will look closely at the minutes for any clues as to how the Fed might react at its next meeting. Additionally, Atlanta Federal Reserve Bank President Dennis Lockhart will be at Georgia State University to speak about U.S. inflation.

Meanwhile, Big Lots (BIG), Chico’s FAS (CHS), Gander Mountain (GMTN), Brown-Forman (BFB), Dell (DELL), Novell (NOVL), Sears Holdings (SHLD) and Tiffany (TIF) are among the companies scheduled to release their quarterly results throughout the week.

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