The Standard and Poor's 500 edged up to a five-year high Friday, extending a rally that started in January.

The S&P 500 rose 8.54 points to 1,517.93, closing 0.3 per cent up for the week. The index is at its highest since November 2007 and has advanced for six weeks, the longest streak of gains since August.

The Dow Jones industrial average rose 48.92 points, or 0.4 per cent, to 13,992.97. The Nasdaq composite climbed 28.74 points, or 0.9 per cent, to finish the week at 3,193.87.

The Dow had its best January in almost two decades, and closed above 14,000 on February 1 for the first time since 2007. The index is up 6.8 per cent so far this year; the S&P 500 is up 6.4 per cent.

A last-minute budget deal in Washington to avoid the "fiscal cliff" of tax hikes and spending cuts helped powered the rally, as did optimism about the housing sector and gradual improvements in the jobs market.

The S&P 500 finished the week higher despite logging its biggest daily decline in almost three months last Monday following worrying news from Europe.

The index fell 1.2 per cent that day as bond yields in Spain and Italy rose on concern that the region's politicians will drag Europe back into crisis. European Central Bank President Mario Draghi's cautious comments about the region's economy also weighed on markets Thursday.

Largely positive corporate earnings reports and a report that showed that the U.S. trade deficit narrowed sharply in December provided more fuel for the market's advance Friday.

AP