US STOCKS-Rally drives S&P 500 to highest close since May 3
(Updates to close)
* Facebook hits new low after results
* S&P 500 surge puts it at highest close since May 3
* Financial sector among best performers
* Dow up 1.5 pct, S&P up 1.9 pct, Nasdaq up 2.2 pct
By Caroline Valetkevitch
NEW YORK, July 27 (Reuters) - U.S. stocks surged on Friday, driving the S&P 500 to its highest close since May 3 as hopes increased that the Federal Reserve and the European Central Bank may provide further stimulus.
Taken together, the S&P 500's two-day move was its biggest since December, driven by optimism that central banks will ride to the rescue with more aid for the world economy. The S&P 500 rose 3.6 percent in those two days, and the moves come before key meetings of both the Fed and the ECB next week.
The Dow ended above 13,000 for the first time since May 7.
European Central Bank President Mario Draghi will meet with Bundesbank President Jens Weidmann to discuss several measures, including bond purchases, to help the euro zone, according to a Bloomberg report.
"The reason the market's doing well today and did well yesterday is we have another round of supportive rhetoric coming out of Europe," said Leo Grohowski, who oversees more than $170 billion in client assets as chief investment officer at BNY Mellon Wealth Management in New York.
"The Fed continues to be in the news" as well, he said, "but it should be clear to most investors and market participants that the Fed alone cannot restore confidence, cannot create jobs and cannot determine tax policy."
The U.S. economic picture remained bleak and earnings continued to disappoint investors. Shares of Facebook hit an all-time low on Friday after posting its first-ever results, while S&P 500 guidance on the current quarter is the most negative it's been since 2001, Thomson Reuters data showed.
With pre-announcements in so far from 54 Standard & Poor's 500 companies, the negative-to-positive ratio for the third quarter stands at 5 to 1, the most negative since the second quarter of 2001, according to Thomson Reuters data.
While 67 percent of the 290 S&P 500 companies that have reported second-quarter results so far have beaten earnings expectations, just 40 percent have beaten revenue estimates, the lowest amount since the first quarter of 2009, Thomson Reuters data shows.
An index of the S&P 500 financial sector, seen as among the most sensitive to weakness in Europe, was one of the day's best performers, ending up 2 percent. The KBW bank index gained 1.5 percent.
Helping the argument for more stimulus, data showed U.S. gross domestic product growth slowed to a 1.5 percent annual rate in the second quarter as consumers spent at their most sluggish pace in a year.
Sentiment also got a boost on Friday after the French daily Le Monde reported that euro-zone governments and the ECB are preparing to take action to bring down borrowing costs for Spain and Italy. [ID: nL6E8IRBC2]
The Dow Jones industrial average climbed 187.73 points, or 1.46 percent, to 13,075.66 at the close. The Standard & Poor's 500 Index advanced 25.95 points, or 1.91 percent, to finish at 1,385.97. The Nasdaq Composite Index gained 64.84 points, or 2.24 percent, to end at 2,958.09.
Stocks posted strong gains for the week, with the S&P 500 putting in its third straight week of increases. For the week, the Dow was up 2 percent, the S&P 500 was up 1.7 percent and the Nasdaq was up 1.1 percent.
Facebook Inc shares tumbled to an all-time low of $22.28 a day after the social media company reported a drastic slowdown in revenue growth and failed to offer financial forecasts to quell fears about its ability to boost advertising growth. The stock ended at $23.71, down 11.7 percent.
On the flip side, Merck & Co was among companies giving the biggest boost to the Dow after the drugmaker reported better-than-expected quarterly earnings, with strong sales growth of its vaccines and treatments for diabetes and HIV. The stock rose 4 percent to $45.08.
Amazon shares rose 7.9 percent to $237.32 after reporting improved profit margins on Thursday after the bell.
Volume was 7.54 billion shares on the New York Stock Exchange, the Nasdaq and the Amex, compared with the year-to-date daily average of 6.75 billion shares.
Advancers beat decliners on the NYSE by about 5 to 1 and on the Nasdaq by about 3 to 1. (Editing by Dave Zimmerman and Jan Paschal)
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