NEW YORK – An encouraging trade report and signs that a tax cut package would pass the Senate sent stocks to their highest levels in two years Friday.

Bond prices fell for another day as investors expected the tax deal to lead to economic growth and higher budget deficits.

The Commerce Department reported that the U.S. trade deficit fell to its lowest level in nine months in October. Separately, the Treasury Department said the federal government’s budget shortfall hit $150.4 billion in November.

Treasury prices dropped after the report was released, pushing their yields higher. The yield for the 10-year note rose to 3.33 percent, up from 3.21 percent late Thursday.

The Standard & Poor’s 500 index rose 7.40, or 0.6 percent, to 1,240.40. It was the third straight day that the S&P index closed at a new high for the year.

The index has gained 11.2 percent this year and is now trading at the same price it did the week before Lehman Brothers filed for bankruptcy in September 2008.

General Electric Co. led the 30 stocks that make up the Dow Jones index with a 3.4 percent jump to $17.72.

GE said it planned to raise its dividend by 17 percent.

The Dow was the weakest of the three main stock average for the week, gaining just 0.3 percent. The S&P 500 added 1.3 percent and the Nasdaq rose 1.8 percent.

Movie rental company Netflix Inc. rose 1.9 percent to $194.63 after Standard and Poor’s added it to the S&P 500 index. The company has gained 250 percent this year.

Cablevision Systems Co., F5 Networks Inc. and Newfield Exploration Co. were added to the S&P 500 as well.

The index dropped The New York Times Co., Eastman Kodak Co. and Office Depot Inc.

Two stocks rose for every one that fell on the New York Stock Exchange.

Consolidated volume was 4.6 billion shares.