Delaying first rate increase until employment and inflation return to the Fed's objectives "would risk overheating the economy," Yellen said.

A report Friday showed the cost of living excluding food and fuel rose at a faster pace than expected in April, indicating inflation is inching toward the Fed's goal. The core consumer-price index climbed 0.3 per cent, the biggest gain since January 2013. Recent mixed economic reports had prompted investors to push back estimates for when the Fed will begin raising rates, helping to drive equities to all-time highs.

Data Thursday showed sales of existing homes in April unexpectedly dropped, after the March pace was the strongest in almost two years. A series of factory reports yesterday indicated the industry remains tepid this month against a backdrop of weaker global growth and a strong dollar.

Most Fed officials have said they are likely to raise rates this year, though they haven't specified precisely when. Economists expect an increase in September, according to a Bloomberg survey.

How markets react when they do finally tighten is a source of concern for Fed officials, who have kept the benchmark federal funds rate near zero since December 2008. Chair Yellen and her colleagues are fretting that bond yields near record lows could surge once the Fed starts raising rates, according to minutes of their April meeting released this week.

Higher costs of everything from mortgages to car loans could result, potentially putting the fragile economic recovery at risk.

The S & P 500 posted a third consecutive weekly gain, the longest streak since February. The index yesterday snapped a two-day losing streak after three successive sessions of all- time highs. The Dow reached a record Wednesday, topping its previous closing high set on March 2.

The Chicago Board Options Exchange Volatility Index rose 0.2 per cent to 12.13, after falling Thursday to a 2015 low. The gauge, known as the VIX, closed with its second straight weekly decline. About 4.9 billion shares changed hands on US exchanges, 23 per cent below the three-month average.


Transportation shares resumed their slide after bouncing Thursday from their worst drop in two months. Kansas City Southern and Delta Air Lines fell at least 1.3 per cent. The Dow Jones Transportation Average sank 0.8 per cent.

Energy companies declined along with oil as the dollar gained for the fourth time in five days, reducing the appeal of commodities priced in the US currency. Hess and Oneok dropped at least 1.3 per cent.

The dollar also weighed on consumer staples shares as the stronger US currency can dent profits from overseas business. Tyson Foods and Philip Morris International lost more than 1.1 per cent.

"Any time you do get a little bit stronger data, people kind of flinch," said Matt Maley, an equity strategist at Miller Tabak & Co in Newton, Massachusetts. "Their first reaction is that the Fed is getting what it wants to raise rates. The stock market is at new highs and a little overbought on a near-term basis, and people are taking some chips off the table ahead of the long weekend."

Quest Diagnostics climbed 7.7 per cent, and soared as much as 20 per cent, after a Twitter post that was intended to convey a "market rumour" that the company was weighing a sale. Shares reached an all-time high.

Deere rose 4.4 per cent, the most in more than three years, after its better-than-expected forecast for fiscal 2015, as demand for its construction equipment mitigated the impact of declining sales of its signature green tractors and combines.

Hewlett-Packard advanced 2.8 per cent, the most since February, after reporting quarterly profit that exceeded analysts' estimates as corporate spending on servers picked up ahead of the computer maker's planned separation into two companies.

Expedia reached a record, rising 6.7 per cent for the fifth straight gain and the longest streak since January. The company said Friday it sold a 62.4 per cent majority stake in eLong for about $US671 million.

Intuit jumped 2.5 per cent to an all-time high after the TurboTax software maker reported revenue that exceeded analysts' estimates for its most important quarter.

NetApp rebounded to lead gains in the technology group, along with H-P and Intuit. The data management company rallied 4.3 per cent after its worst drop in three years Thursday, sparked by a cut in its full-year outlook.

Bloomberg