NEW YORK World shares rose on Friday and the S&P 500 index marked its highest close in five years after data on the services sector and labor market data signaled the U.S. economy continues its steady but slow recovery, while the yen hit a 2-1/2-year low against the dollar.
Yields on 10-year U.S. notes slipped after touching an eight-month high earlier in the session. The notes had sold off sharply on Thursday after the release of Federal Reserve meeting minutes that hinted at growing unease within the Fed about asset purchases.
The benchmark S&P 500 .SPX gained almost a half a percent to notch its highest closing level since December 31, 2007, after data showed the U.S. services sector grew in December at its fastest clip in 10 months. Stocks had surged earlier in the week following a budget deal in Washington.
European equities rose, partly on signs that Europe may be through the worst of its economic slump, while growth in the world's private sector businesses hit a nine-month high at the end of last year according to a JPMorgan gauge.
"The economy is recovering at the hands of Fed policy, and it is getting restored to a point of critical mass where the Fed will eventually remove itself," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
The S&P 500 gained 7.10 points, or 0.49 percent, to close at 1,466.47. The Dow Jones industrial average .DJI gained 43.85 points, or 0.33 percent, to 13,435.21, and the Nasdaq Composite Index .IXIC gained 1.09 points, or 0.04 percent, to 3,101.66.
A 2.8 percent decline in Apple (AAPL.O) shares cut into gains on the Nasdaq.
An MSCI index of global shares .MIWD00000PUS posted its best week in six, and its sixth week of gains in the last seven. A pan-European equities gauge .FTEU3 rose 0.4 percent to close at its highest level since February 28, 2011.
On Thursday the Fed minutes disturbed the bond market, with Fed officials seen as being more concerned about the potential risks of the U.S. central bank's asset purchases on financial markets, even as they continue an open-ended stimulus program for now.
"We could see the central bank tapering off its bond buying across 2013, but do not see it walking away from low interest rates quickly," Miller Tabak's Wilkinson said.
Most economists at Wall Street's top financial institutions expect the Fed to stop buying Treasury debt sometime in 2013, according to a Reuters poll.
The 10-year U.S. Treasury note was last up 2/32, with the yield down for the day at 1.9026 percent. Yields earlier hit an eight-month high of 1.9755 percent.
YEN SLIDE CONTINUES
The dollar rose to a near 2-1/2-year high against the yen on speculation of more monetary easing in Japan.
"The reason that the dollar is holding up better against the yen than anywhere else is because the main focus is on the Japanese monetary policy rather than the U.S. monetary policy," said Vassili Serebriakov, FX Strategist at BNP Paribas in New York.
The yen posted its eighth consecutive week of declines against the greenback.
Tentative signs that the euro zone economy may have passed the worst of its downturn also supported risk assets.
Markit's Eurozone Composite PMI, which gauges business activity across thousands of the region's companies, rose in December to 47.2, from 46.5 in November - below the 50 line that divides growth from contraction but at its highest level since March.
Brent crude shed 0.6 percent to $111.45 a barrel while U.S. crude edged up 0.2 percent to $93.10.
Spot gold pared losses that took it to its lowest since August, but was still slightly down on the day at $1,656.85 an ounce.