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Stocks at highest level in 2 1/2 years thanks to surge in financial sector

Bank stocks drove stock indexes higher Friday and the Dow Jones industrial average rose to its highest level in two and a half years.

The Dow Jones industrial average gained 55.48 points, or 0.5 percent, to 11,787.38. It was the highest close for the Dow since June 25, 2008.

The Standard & Poor's 500 index rose 9.48, or 0.7 percent, to 1,293.24. The Nasdaq rose 20.01, or 0.7 percent, to 2,755.30.

Gains were spread across the market. Consumer staples companies were the only one of the 10 company groups that make up the S&P 500 index to fall. Financial companies gained the most, 1.7 percent.

The Labor Department reported that consumer prices rose 0.5 percent last month, the largest increase since June 2009. However, 80 percent of the increase was due to higher gas prices, meaning that the risk of widespread inflation remains low.

"Prices of oil, corn and wheat are all way up," said Tom di Galoma, head of fixed-income trading at Guggenheim Partners in New York. "But at the end of the day, if the unemployment rate is at 9.4 percent, there's not enough demand to drive inflation higher. People just aren't spending that much."

Without food and energy costs, consumer prices increased only 0.1 percent for the second straight month. This "core" inflation rate has gained just 0.8 percent in the past year.

In a separate report, the Commerce Department said retail sales rose in December for the sixth month in a row, driven by gains in automobile and furniture sales.

Treasury prices fell slightly. The yield on the benchmark 10-year Treasury note rose to 3.32 percent from 3.30 percent late Thursday. The yield is used by lenders to set interest rates on mortgages and other loans.

The Dow gained 1 percent for the week, its seventh week of gains. The last time it had a rising streak that long was in the seven weeks ended April 23, 2010.

The S&P index rose 1.7 percent over the week. The Nasdaq jumped 1.9 percent.

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