The Nasdaq index was higher when the halt occurred and closed 38 points higher at 3638. The stock of exchange parent Nasdaq OMX stock wasn't so lucky, losing 3.4 percent on the day. The S&P was up 14 points at 1656, just above its 50-day moving average, and the Dow was up 66 at 14,963.
Nasdaq said it halted trading after it became aware price quotes were not being disseminated by the Securities Industry Processor, basically a quote disseminator. Nasdaq is the operator of the SIP for the industry on its listed issues, while the NYSE operates SIPs for its stocks and ETFs.
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"If it was a Nasdaq problem with a Nasdaq system, the other exchanges could have kept trading the four-letter symbols but because the industry tape uses (SIP) price dissemination and Nasdaq operates it, they called a regulatory halt," said Richard Repetto, analyst with Sandler O'Neill. "One interesting thing, it's not because the market is all fragmented. it's the one system that's not fragmented."
In the early evening Thursday, Nasdaq followed up with another statement, this time pointing to issues between an exchange participant and the SIP. "There was a connectivity issue between an exchange participant and the SIP, which lead to a degradation in the ability of the SIP to disseminate consolidated quotes and trades. The cause of the issue has been identified and addressed," it said.
Nasdaq officials declined to comment beyond the statement.
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Well before the Nasdaq halt, there were reports Thursday morning that NYSE Euronext was telling traders its electronic exchange Arca was having technical issues with some Nasdaq listed stocks. Nasdaq had stopped routing orders to Arca temporarily. But those issues were reportedly resolved before Nasdaq halted all trading. Once Nasdaq resumed trading, there were some technical issues when Arca went to reconnect, an NYSE spokesman said. He made the comment, in response to a question, before Nasdaq issued its statement.
"The difference between Facebook and now, and everything we know about this, it doesn't look like there's big direct damage," said Repetto. "They (Nasdaq) shut down and they shut the entire industry down and people knew their positions. the direct monetary damages look limited at the moment. Its brand, its reputation and the listing business could see other indirect effects. The amount of people suing them is going to be limited. They shut the whole market down and they allowed people when they came up to cancel their bids."
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As for trading Friday, Scott Redler of T3live.com said stocks could attempt to press higher again. "We closed higher than where we were before the halt. That tells me this oversold bounce can continue," he said. "For equities, it was almost like a yawner. It was ridiculous it took them three hours to get back up."
New home sales for July are reported at 10 a.m. ET.
Traders will also be watching the Fed Friday, as officials meet for their annual symposium in Jackson Hole, Wyo. Fed Chairman Ben Bernanke will not be there, but other Fed officials are in attendance.
—By CNBC's Patti Domm. Follow here on Twitter