Stocks closed near session highs Friday, hoisting the Dow and S&P 500 to finish in the black for the week, as investors grew more optimistic over the progress in Washington.
"We're solidly in the buy-the-dip camp in terms of the shutdown—we view the shutdown as a non-event [for the market]," said Erik Ristuben, chief investment strategist at Russell Investments. "The big risk was the debt ceiling and a potential credit default. And it seems that Washington is dedicated to taking default off the table and that's what the market's reacting to."
(Read more: Debt ceiling fight is déjà vu all over again)
The Dow Jones Industrial Average soared 111.04 points, to close at 15,237.11, boosted by Visa and Johnson & Johnson. On Thursday, the Dow skyrocketed more than 300 points, posting its second-best day this year.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, closed below 16.
For the week, the Dow advanced 1.09 percent, the S&P 500 climbed 0.75 percent. But the Nasdaq shed 0.42 percent, snapping a five-week win streak. P&G led the weekly Dow gainers, while Merck lagged.
Most key S&P sectors closed higher for the week, led by utilities, while consumer discretionary slipped.
"I don't expect a full deal by the weekend but I do expect [them] to continue to talk," said Ristuben. "In general, we think equity earnings are going to be good—in the 4 to 5 percent range—we're actually quite conservative. But we think that's enough to take equities forward because cash and bonds don't look like they're going to offer very good returns over the next year."
With a partial government shutdown in its 11th day, House Republicans were prepared to offer a new deal featuring both an increase in the debt limit and an end to the government shutdown in return for spending cuts, according a report from the AP.
The AP also reported that Senate Republicans have started work on a bipartisan solution to the debt ceiling and government shutdown crises after a meeting with President Obama.
"This has been a powerful bull market and my sense is that most investors are seeing this as a glass half full … so at the very least, we'll get a six-week extension," said Uri Landesman, president of Platinum Partners.
Among earnings, JPMorgan topped Wall Street expectations. But overall, the bank posted a quarterly loss due to legal expenses, but it expects those costs to eventually abate and normalize. Shares were higher for most of the session, but closed nearly flat.
And Wells Fargo posted quarterly earnings that hit a record as loans and deposits surged during the period.
(Read more: Bove: Don't worry about this bank)
On the economic front, consumer sentiment fell in October to its weakest level in nine months as the government shutdown affected Americans' outlook on the economy. The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment fell to 75.2 in October, down from 77.5 in September. Economists surveyed by Reuters expected a reading of 76.0.
(Read more: How safe is your money if the US defaults?)
Producer price index, retail sales and business inventories have been postponed due to the ongoing government shutdown.
Gap tumbled to lead the S&P 500 laggards after the clothing retailer posted same-store sales that declined 3 percent in September, disappointing analysts who had expected a growth of 1.6 percent.
Safeway posted sharply lower earnings for the quarter. But shares of the grocery chain rallied to lead the S&P 500 gainers after the company said it plans to exit the Chicago market by early next year in an effort to narrow its focus. In addition, at least four brokerages lifted their price targets on the company.
The Financial Times reported late on Thursday that Google funneled 8.8 billion euros ($12 billion) of royalty payments to Bermuda last year, a quarter more than in 2011, underlining the rapid expansion of a strategy that has saved the internet giant billions of dollars in tax.
—By CNBC's JeeYeon Park (Follow JeeYeon on Twitter: @JeeYeonParkCNBC)
Coming Up Next Week:
MONDAY: Columbus Day: Markets open/banks closed, Nobel prize for economics; Earnings from JBHunt
TUESDAY: Empire state mfg survye, IRS deadline, Wal-Mart Investor mtg; Earnings from Citigroup, Coca-Cola, J&J, Intel, Yahoo, CSX
WEDNESDAY: Mortgage applications, CPI*, Treasury int'l capital, housing market index, Beige Book; Earnings from Bank of America, BlackRock, PepsiCo, US Bancorp, American Express, Ebay, IBM
THURSDAY: Fed's Fisher speaks, jobless claims, housing starts*, industrial production*, Philadelphia Fed survey, natural gas inventories*, oil inventories*, Fed's Kocherlakota speaks, Fed's balance sheet/money supply, US debt ceiling deadline, Windows 8.1 available, Dell annual shareholder mtg; Earnings from Goldman Sachs, Verizon, Google, Capital One, Chipotle Mexican Grill
FRIDAY: Leading indicators; Earnings from General Electric, Schlumberger, Morgan Stanley, Honeywell
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