Can the market keep up the momentum?

A good week for stocks ended quietly on Friday as worries about housing, Microsoft (MSFT, news, msgs) and higher oil prices trumped the benefits of lower interest rates and the continuing fever over big deals.

The financial markets will be closed Monday for Presidents Day, and trading volume among the stock exchanges was weak on Friday.

So, traders and investors will have a long weekend to ponder the implications of this week's rally and whether that makes the stock market vulnerable to some sort of correction. The big fuel to the rally -- deals or talk of deals -- was still intact on Friday.

Expect a lot of talk about the weekend over reports that General Motors (GM, news, msgs)and DaimlerChrysler (DCX, news, msgs) are talking about GM's possibly acquiring the troubled Chrysler Group. The news pushed Daimler shares higher; GM was down slightly.

The Dow Jones industrials, down most of the day on Friday, finished up a whopping 2.56 points at 12,767.57. Believe it or not, that was enough for the blue-chip index to hit a new high -- its 30th since last October.

The Standard & Poor's 500 Index closed down 1.3 points at just under 1,456, and the Nasdaq Composite closed down slightly at 2,496.

For investors, this was a lovely week, the best for the Dow since the week that ended on Nov. 17, when the Dow had a 1.95% gain. The blue-chip index added nearly 187 points, about 1.5%, and is up 2.44% for the year.

The S&P 500 rose 17.5 points, or 1.2%, and the Nasdaq jumped more than 36 points or 1.5%. The S&P is up 2.6% so far this year, and the Nasdaq is up nearly 3.4%.

Eighteen of 30 Dow stocks were higher on Friday, led by DuPont (DD, news, msgs), up a modest 1.4% to $52.47. Gainers fought decliners to a draw on the New York Stock Exchange but had a modest lead on Nasdaq. Campbell Soup (CPB, news, msgs) led the S&P 500 with a 6.9% on the strength of a 12% gain in second-quarter earnings.

Crude oil moved higher -- to $59.30 a barrel in New York -- traders said that appeared to be short-covering ahead of the long weekend.

The markets for the week

	Close for week	Wk. ago close	% chg.	YTD. chg.
Dow Jones industrials	12,767.57	12,580.83	1.48%	2.44%
S&P 500	1,455.54	1,438.06	1.22%	2.63%
Nasdaq Composite	2,496.31	2,459.82	1.48%	3.35%
Russell 2000	818.15	807.11	1.37%	3.87%
Crude oil per barrel	$59.39	$59.89	-0.83%	-2.72%
10-yr. Treasury yield	4.69%	4.78%	-1.96%	-0.42%
Gold per troy ounce	$672.80	$672.30	0.07%	5.45%

Is the market overvalued?

Some indicators -- especially price-earnings ratios -- suggest the market is reasonably valued. A week ago, the Dow stocks were selling at 20 times trailing earnings. The S&P 500 was selling for about 18 times earnings.

But a huge run-up in stock prices since last summer still makes one wonder if some sort of selloff in order. The Dow is up 18.8% since mid-July. The small-cap Russell 2000 index ($RUT.X), which hit a new high of 818 on Friday, has risen 20% since then.

Indicators tracked by Birinyi Associates overwhelmingly support the overbought theory.

At the same time, technology, which was one of the top sectors in the market in the second half of 2006, has been weak so far this year. The problem: price wars among chip makers, disk drive makers and other groups within the sector. The Amex Disk Drive Index ($DDX.X) is off 6.4% so far this year. The Amex Networking Index ($NWX.X) is down 0.2% for the year.

The Philadelphia Semiconductor Index ($SOX.X) , up 1.1% so far this year, may see serious weakness on Tuesday.

After Friday's close, flash memory maker SanDisk (SNDK, news, msgs) said it is cutting about 250 jobs, or 10% of its global work force, and reducing all executive salaries to curb costs.

The company, which makes flash memory chips for consumer gadgets like digital cameras and media players, said it expected to have to cut prices on many products by 30% to 40% in order to keep market share. Shares fell 2.5% in regular trading and an additional 4.6% in after-hours trading to $38.30.

But Federal Reserve Chairman Ben Bernanke gave bulls a clear sense that the Fed is not going to make any big moves for the next few months. The economy looks good, Bernanke told Congress this week. Inflation doesn't look like a big problem, and Wall Street responded with a big stock rally and a rally in bonds. The yield on the 10-year Treasury note, in fact, fell from 4.78% a week ago to 4.69% on Friday.

What Wall Street took away from Bernanke testimony is that the Fed isn't likely to raise rates beyond the current 5.25% for its key federal funds rate unless it is absolutely forced to.

And as many traders will tell you, you don't fight the Fed. When the Fed stopped raising rates last summer, the market took off.

GM said to be interested in Chrysler

General Motors shares fell 2% immediately after reports surfaced that GM is in talks to buy all of DaimlerChrysler's Chrysler Group. GM shares recovered to a small loss at $36.34 for the day. DaimlerChrysler shares were up 4.3% to $73.26 on the news. The stock had been up as much as 6% just before noon.

Trade publication Automotive News said talks between the two companies about an alliance to design a new sport-utility vehicle have moved to discussions about an outright sale of Chrysler Group.

DaimlerChrysler CEO Dieter Zetsche said Wednesday that under its restructuring plan, all options for the company's future were on the table.

But despite the increasing number of DaimlerChrysler shareholders who would like to see the Chrysler unit go, selling it is easier said than done, Bankhaus Salomon Oppenheim analyst Michael Raab told the magazine. He said it could cost $34 billion to separate the businesses.

GM's top union official in Europe said it would be a "disaster" if GM bought Chrysler, the publication said.

"The problem is that Chrysler is in the same situation as GM. They don't have the right product portfolio," Klaus Franz told the publication. "This would be comparable to GM's alliance with Fiat. And GM lost a lot of money with that decision."

Pete Brown, Automotive News' editorial director, told CNBC that GM routinely has discussions with other auto makers. He said German investors are pressuring DaimlerChrysler's CEO to get rid of the "American stinker."

• Would a Chrysler deal help GM?

• Video: Do auto mergers really work?

It is unlikely, however, that a GM-Chrysler deal would go through, Brown said. Auto analyst Jim Hall at AutoPacific agreed. He said if GM took on the valuable Chrysler brand, the burden for legacy costs would increase 30% from the $5 billion GM already puts aside every year for such costs.

"If they do merge, there would have to be massive streamlining, and there would be hundreds of thousands of more jobs lost," David Feinman with a Havens Advisors, a fund manager that specializes in distressed debt, told Reuters.

Neither DaimlerChrysler nor GM would comment on the story.

Thursday, Chrysler Group CEO Tom LaSorda said Chrysler would tap into other alliances to save costs on expanding outside the United States. LaSorda did not comment on any specific alliances.

DaimlerChrysler also said Friday that doors at eight more plants will be shut, in addition to the three announced Wednesday as part of a restructuring plan.

The latest plants to close make components that go into pickups, sport-utility vehicles and other bigger vehicles, none of which have been selling well for Chrysler.

Energy prices -- New York close

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Crude oil (NYMEX) (per barrel)	$59.39	$57.99	$1.40	-2.72%	-2.72%
Heating oil (per gallon)	$1.6734	$1.6271	$0.0463	4.72%	4.72%
Natural gas (per million BTU)	$7.5030	$7.2920	$0.2110	19.11%	19.11%
Unleaded gasoline (per gallon)	$1.6453	$1.5972	$0.0481	2.70%	2.70%

Microsoft cautions optimists

It's generally not good news when a company's CEO says analysts and investors are overly optimistic about revenue growth. Microsoft (MSFT, news, msgs) CEO Steve Ballmer said that very thing late Thursday, sending shares down 2.44% to $28.74 on Friday. Ballmer told analysts to remember that sales of the company's new Windows Vista operating system are closely tied to sales of personal computers, and though Vista would help boost PC sales slightly in the next year, it would not spark a much bigger increase than normal growth rates. (Microsoft is the publisher of MSN Money.)

Analysts expect Microsoft's revenue for fiscal 2008 to be $56.4 billion, a 12% increase from this fiscal year's estimates. The new fiscal year begins July 1.

Several analysts were unfazed by Ballmer's warning. "Microsoft's Windows sales typically mirror the PC market," Cowen and Co. analyst Walter Pritchard told MarketWatch. "The news (about Vista sales) was really very short term in nature."

Ballmer wasn't all negative. He said there are many growth opportunities for the company, including desktop software for the corporate world and business services. He also said that Microsoft is willing to spend money to acquire online customers from rival Google (GOOG, news, msgs). Microsoft spent $450 million to release Vista and Office 2007, an expense that will be freed up next year.

He said analysts and investors would get more detailed guidance during the company's earnings conference call in April.

Over the past month, shares of Microsoft have fallen 5%, and Google shares have lost 8%.

American Airlines parent a takeover target?

Shares of AMR Corp. (AMR, news, msgs), the parent of American Airlines, rose 2.3% to $38.92 on Friday after BusinessWeek reported that AMR is being pursued by a group that includes Goldman Sachs Group (GS, news, msgs) and British Airways (BAB, news, msgs).

The report said the company could get between $46 and $52 per share, with a total value between $9.8 billion and $11.1 billion.

Airline analyst Ray Neidl at Calyon Securities said consolidation is coming, but it won't be until next year, when more companies start looking to merge, including US Airways (LCC, news, msgs).

• Video: Will British Air and Goldman Sachs buy out American?

Neidl told CNBC that he is skeptical about any airline going private because "it's still a cyclical business." It's more likely that there would be more consolidation among carriers, he said.

US Airways was down 1.2% to $56.70. Continental Airlines (CAL, news, msgs) was up 0.9% to $44.79.

Subprime woes could hit GM

While everyone is talking Chrysler Chrysler Chrysler, General Motors has something else to worry about. Last month, the auto maker said it was delaying its fourth-quarter earnings, and now those earnings might be far worse than expected because of the trouble in the subprime mortgage business, according to MarketWatch.

One of the units of GM's financing arm, General Motors Acceptance, is a mortgage business that originates and securitizes mortgages and home loans.

The charge GM could take for bad subprime loans at that unit, Residential Capital, could be up to $750 million, Lehman Bros. analyst Brian Johnson told MarketWatch.

Johnson is basing his predictions on what happened to HSBC (HBC, news, msgs) earlier this month. HSBC said its charge for bad mortgages would be 20% higher than analysts predicted because of increased defaults on subprime mortgages.

Spanish bank to buy Compass Bancshares

Spain's Banco Bilbao Vizcaya Argentaria (BBV, news, msgs) said it will acquire Compass Bancshares (CBSS, news, msgs) for $9.6 billion in a move to tap into Hispanic market in the U.S.

Compass shareholders can elect to choose $71.82 in cash for each of their shares or 2.8 shares of BBVA stock. The offer represents a 16% premium to Thursday's closing price. This morning, Compass shares were up 6.5%, to $70.70 on the news.

BBVA has been expanding in the U.S. over the past few years, and this deal will provide the Spanish bank with 165 branches in Texas. The deal will make BBVA the biggest banking player in Texas, which is a key market both because of its sizable Hispanic population and because of its proximity to Mexico, where BBVA has close financial ties.

Banco Bilbao is Spain's second-biggest bank, and its Mexican-U.S. unit includes Mexico's biggest bank, Bancomer.

Short hits from the markets -- 4 p.m.

	Fri.	Thur.	Chg.	Month chg.	YTD chg.
Treasurys
13-week Treasury bill	5.030%	5.020%	0.010	1.11%	2.97%
5-year Treasury note yield	4.676%	4.687%	-0.011	-2.97%	-0.53%
10-year Treasury note yield	4.690%	4.706%	-0.016	-2.82%	-0.42%
30-year Treasury bond yield	4.788%	4.804%	-0.016	-2.80%	-0.62%
Currencies
U.S. Dollar Index	83.99	83.91	0.08	0.67%	0.67%
British pound in dollars	$1.952	$1.951	0.001	-0.41%	-0.41%
Dollar in British pounds	£0.512	£0.513	0.000	0.41%	0.41%
Euro in dollars	1.315	1.314	0.001	-0.41%	-0.41%
Dollar in euros	€ 0.7607	€ 0.7610	0.000	0.41%	0.41%
Dollar in yen	¥119.30	¥119.20	0.10	0.24%	0.24%
Commodities
Gold	$672.80	$671.40	$1.40	5.45%	5.45%
Copper	$2.5590	$2.6790	-$0.12	-10.87%	-10.87%
Silver	$13.9900	$13.9620	$0.03	8.16%	8.16%
Crude oil (NYMEX) (per barrel)	$59.39	$57.99	$1.40	-2.72%	-2.72%

By Charley Blaine and Elizabeth Strott