Stocks could resume rally on Fed optimism

By Jennifer Ablan

NEW YORK (Reuters) - Bolstered by the Federal Reserve's aggressive liquidity action, stocks could extend their solid rally next week even in the face of still weak consumer and housing-related data.

Friday, the Dow Jones industrial average .DJI soared 261.66 points, or 2.16 percent, to end at 12,361.32, capping one of the most volatile weeks in U.S. financial market history. The Standard & Poor's 500 Index .SPX also enjoyed ample gains at the end of a holiday-shortened week, climbing 31.09 points, or 2.39 percent to end the week at 1,329.51. The Nasdaq Composite Index .IXIC jumped 48.15 points, or 2.18 percent, to close at 2,258.11.

"This will be the bottom," said Mark Zandi, chief economist and co-founder of Moody's Economy.com. "We got an incredibly aggressive Fed and three to five years from now, we will realize that this was the start of a bottoming process."

Stock investors already have been quick to sniff that out.

For the week, the Dow jumped 3.43 percent, the S&P 500 rose 3.21 percent and the tech-heavy Nasdaq Composite gained 2.06 percent.

Next week's barrage of economic indicators will include home sales, durable goods orders, consumer confidence and spending, GDP and some widely watched gauges of inflation.

But investors are likely to shake off these readings.

"There's a lot of bearishness built into expectations, so the markets could respond positively if we get any better-than-expected news from these economic reports," said Keith Wirtz, president and chief investment officer of Fifth Third Asset Management, which manages $22.5 billion.