DOW CLOSES WITH 52.45 GAIN.

Byline: Bruce Meyerson Associated Press 

The Dow Jones industrial average caught up with the rest of the stock market Friday, flirting with a record for the first time since early April as inflation worries continued to evaporate.

A rally in bonds powered most broader indicators to new records, but blue chip stocks were noticeably stronger than the technology and more speculative issues that have led the market for weeks.

The Dow industrials rose 52.45 points to 5,687.50 - just shy of the blue chip barometer's record high at 5,689.74, set April 3. Earlier in the session, the Dow came within striking distance of 5,700.

For the week, the Dow was up 169.36 points. That brought its gains to nearly 350 points, or 6.5 percent, from a steep sell-off less than two weeks ago. The market had been rattled by fears that business activity has been accelerating too quickly and would result in higher inflation, which would prompt the Federal Reserve to raise interest rates. Higher rates can hurt corporate profits by raising borrowing costs and slowing consumer spending.

But over the past week, a series of modest readings on inflation has eased those worries, lifting bonds and sending interest rates lower.

The case for controlled inflation was reinforced Friday morning with news that a widely watched index on consumer sentiment has fallen this month. Lower consumer confidence can rein in spending, putting less pressure on supplies and prices.

``The conclusion is that the Fed will do nothing at next week's meeting, recognizing that although the economy has picked up, it has not put stress on capacity,'' said Joe Battipaglia, market strategist at Gruntal & Co.

Stocks followed bonds higher as the yield on 30-year Treasuries - a benchmark used to determine the interest charged on many loans - fell below 6.9 percent after an unsettling move back toward 7 percent Thursday.

``If rates stay under 7 percent, the market can go higher,'' said Battipaglia, downplaying concerns about stocks becoming pricey.

``With the natural momentum of capital going into stocks and bonds (from mutual funds), unless the Fed decides to increase interest rates or there's a major political development, there are no impediments to overvaluations getting even more overvalued.''

Advancing issues outnumbered declining ones by about 5 to 3 on the New York Stock Exchange, where volume totaled 429.12 million shares, up from Thursday's pace.

The broad advance in blue chip and other big companies helped boost the NYSE composite by 2.37 to 358.78, the fourth new high for that index this week; and lifted the Standard & Poor's 500-stock index to its third new record this week with a gain 4.06 to 668.91.

Both indexes had been considerably sluggish in recent months as investors favored technology and smaller-company stocks. But with the Nasdaq market roaring 13 percent higher since early April, attention has started to refocus on the blue-chip market.

The Nasdaq set its fifth new high in six sessions, but rose just 2.57 to 1,241.88. Similarly, the American Stock Exchange's market value index rose to its fourth new high this week, adding 2.48 to 605.21.

The Russell 2000 list of smaller companies gained 1.87 to 360.63, the sixth straight record finish for that index.