WASHINGTON, DC (Reuters) – In his final act before departing the Securities and Exchange Commission on Friday, the agency's inspector general, David Kotz, criticized how the agency analyzes the economic impact of some of its Dodd-Frank rules.

Kotz's criticism, contained in a report, could have ramifications for the SEC, which has lost several court battles over the years because of flaws in how it demonstrates that the benefits of a rule outweigh its costs.

"We found that the extent of quantitative discussion of cost-benefit analyses varied among rulemakings," Kotz wrote in his report. "Based on our examination of several Dodd-Frank Act rulemakings, the review found that the SEC sometimes used multiple baselines in its cost-benefit analyses that were ambiguous or internally inconsistent."

Last year, U.S. business groups successfully convinced a federal appeals court to overturn one of the SEC's Dodd-Frank rules that aimed to empower shareholders to more easily nominate directors to corporate boards.

In rejecting the rule, the court said the agency failed to properly weigh the economic consequences.

Some of the business groups, such as the U.S. Chamber of Commerce, have since raised similar concerns with other rulemakings pending before the SEC.

Congress passed the Dodd-Frank act in 2010 to more closely police financial markets and institutions after the 2007-2009 financial crisis. The legislation gives the SEC responsibility to write roughly 100 new rules.

Although the SEC is not subject to an express statutory requirement to conduct a cost-benefit analysis of its rules, other laws do require the agency to consider the effects of its rules on capital formation, competition and efficiency.

In addition, the SEC must also follow federal rulemaking procedures, such as providing the public with an opportunity to comment on its proposals.

This is the second report Kotz has issued looking at the quality of the SEC's cost-benefit analysis.

Both reports were issued after certain members of the Senate Banking Committee, including ranking Republican Richard Shelby, voiced concerns about whether regulators were adequately examining the economic impact of Dodd-Frank rules.

To determine how well the SEC is faring, Kotz's office retained Albert Kyle, a finance professor at the University of Maryland's Robert H. Smith School of Business, to help carry out the review.

Friday's report covered a sample of Dodd-Frank rulemakings, including a rule allowing shareholders a non-binding vote on compensation, several asset-backed securities rules and two proposals pertaining to the reporting of security-based swap data.

Kotz's report was critical of the agency in a number of areas.

In one instance, the report cites a memo in which former General Counsel David Becker gave his opinion that the SEC should do thorough cost-benefit analyses on rules that are not explicitly required by Congress.

Rules mandated by Congress, however, generally would not need the same level of cost-benefit research, the memo said.

The report suggested that the agency should reconsider these guidelines, or else it risks "not fulfilling the essential purposes of such analyses."

SEC management, in a written response to the report, disagreed with that point.

"We believe Professor Kyle's opinion fails to appreciate both the practice limitations on the scope of cost-benefit a regulator can conduct, and the distinct roles of Congress and administrative agencies," they said.

"We think it is entirely sensible ... for the staff to focus its attention and the commission's limited resources on matters that the commission has the authority to decide."

Kotz made other recommendations, including using a single consistent baseline in the cost-benefit analysis process and having economists provide more input.

SEC spokesman John Nester declined to comment beyond the SEC comments in the report.

(Reporting By Sarah N. Lynch; Editing by Steve Orlofsky, Gary Hill)

NEW YORK (Reuters) – January has turned out strong for equities with just two trading days to go. If you're afraid to miss the ride, there's still time to jump in. You just might want to wear a neck brace.

The new year lured buyers into growth-related sectors, the ones that were more beaten down last year. The economy is getting better, but not dramatically. Earnings are beating expectations, but at a lower rate than in recent quarters. Nothing too bad is coming out of Europe's debt crisis - and nothing good, either - at least not yet.

"No one item is a major positive, but collectively, it's been enough to tilt it towards net buying," said John Schlitz, chief market technician at Instinet in New York.

Still, relatively weak volume and a six-month high hit this week make some doubt that the gains are sustainable.

But then there's the golden cross.

Many market skeptics take notice when this technical indicator, a holy grail of sorts for many technicians, shows up on the horizon.

As early as Monday, the rising 50-day moving average of the S&P 500 could tick above its rising 200-day moving average. This occurrence - known as a golden cross - means the medium-term momentum is increasingly bullish. You have a good chance of making money in the next six months if you put it to work in large-cap stocks.

In the last 50 years, according to data compiled by Birinyi Associates, a golden cross on the S&P 500 has

augured further gains six months ahead in eight out of 10 times. The average gain has been 6.6 percent.

That means the benchmark is on solid footing to not only hold onto the 14 percent advance over the last nine weeks, but to flirt with 1,400, a level it hasn't hit since mid-2008.

The gains, as expected, would not be in a straight line. But any weakness could be used by long-term investors as buying opportunities.

"The cross is an intermediate bullish event," Schlitz said. "You have to interpret it as constructive, but I caution people to take a bullish stance, if they have a short-term horizon ."

GREECE, U.S. PAYROLLS AND MOMENTUM

Less than halfway into the earnings season and with Greek debt talks over the weekend, payrolls data next week and the S&P 500 near its highest since July, there's plenty of room for something to go wrong. If that happens, the market could easily give back some of its recent advance.

But the benchmark's recent rally and momentum shift allow for a pullback before the technical picture deteriorates.

"We bounced off 1,325, which is resistance. We're testing 1,310, which should be support. We are stuck in that range," said Ken Polcari, managing director at ICAP Equities in New York.

"If over the weekend, Greece comes out with another big nothing, then you will see further weakness next week," he said. "A 1 (percent) or 2 percent pullback isn't out of the question or out of line."

On Friday, the S&P 500 (.INX) and the Nasdaq Composite (.IXIC) closed their fourth consecutive week of gains, while the Dow Jones industrial average (.DJI) dipped and capped three weeks of gains. For the day, the Dow dropped 74.17 points, or 0.58 percent, to close at 12,660.46. The S&P 500 fell 2.10 points, or 0.16 percent, to 1,316.33. But the Nasdaq gained 11.27 points, or 0.40 percent, to end at 2,816.55.

For the week, the Dow slipped 0.47 percent, while the S&P 500 inched up 0.07 percent and the Nasdaq jumped 1.07 percent.

A DATA-PACKED EARNINGS WEEK

Next week is filled with heavy-hitting data on the housing, manufacturing and employment sectors.

Personal income and consumption on Monday will be followed by the S&P/Case-Shiller home prices index, consumer confidence and the Chicago PMI - all on Tuesday.

Wednesday will bring the Institute for Supply Management index on U.S. manufacturing and the first of three key readings on the labor market - namely, the ADP private-sector employment report. Jobless claims on Thursday will give way on Friday to the U.S. government's non-farm payrolls report. The forecast calls for a net gain of 150,000 jobs in January, according to economists polled by Reuters.

Another hectic earnings week will kick into gear with almost a fifth of the S&P 500 components posting quarterly results. Exxon Mobil (XOM.N), Amazon (AMZN.O), UPS (UPS.N), Pfizer (PFE.N), Kellogg (K.N) and MasterCard (MA.N) are among the names most likely to grab the headlines.

With almost 200 companies' reports in so far, about 59 percent have beaten earnings expectations - down from about 70 percent in recent quarters.

(Reporting by Rodrigo Campos; Additional reporting by Chuck Mikolajczak and Caroline Valetkevitch; Editing by Jan Paschal)

STOCK SLUMP: Stocks mostly fell after the government said the U.S. economy grew more slowly than expected in the last three months of 2011. The Dow Jones industrial average and the S&P 500 each fell less than 1 percent. The biggest losers were utility stocks, down 1.3 percent.

BAD WEEK: The fall in the Dow capped a down week for the blue-chip index, the first weekly loss in 2012.

THE GOOD NEWS: Nearly two stocks rose for every one that rose on the New York Stock Exchange, suggesting investors may still be bullish. And despite the drop for the day, the Dow is still up nearly 4 percent this year. The Russell 2000 index of riskier small stocks is up nearly 8 percent.