Stocks closed higher after strong corporate earnings and a weaker yen encouraged investors already re-energized by recent rate cuts by the Federal Reserve.
"With the yen weaker today you're seeing some money flow back into some of the riskier assets, U.S. stocks included," said David Lutz, senior trader at Stifel Nicolaus. "My initial impression out of the gate is that it is currency-driven to a certain extent. The euro/yen rally is probably helping our markets a bit."
The Dow Jones Industrial Average and the S&P 500 each ended with weekly gains of 2.8% -- the best weekly performance since March -- while the Nasdaq Composite closed up 2.7%. For the year, the Dow is up 10.9%, the S&P has gained 7.6% and the Nasdaq is up 10.6%.
The greenback gained on the yen as traders felt more comfortable putting risky carry trades back on the table, which involve selling the Japanese currency for higher-yielding units. The yen fell to a six-week low against the euro.
Analysts said Tuesday's Fed rate cut took some of the sting from the impact of credit problems on the U.S. economy.
"People think it's OK to take on risk because of what the Fed has done and continue on with carry trade," said Brian Taylor, senior currency trader at M&T Bank in New York.
All ten S&P 500 sectors traded higher, with gains led by the energy and tech sectors. Financial stocks were weak following a downgrade of Wells Fargo by Merrill Lynch -- which also cut ratings on a handful of regional banks -- but the group turned mildly positive in afternoon trading.
"What is basically propelling the market higher today is options expiration, no economic numbers and we had some pleasant corporate news," Peter Cardillo, chief market economist for Avalon Partners, told CNBC.com.
Trading volume was above normal levels due to quadruple witching options expiration, a quarterly event marked by the expiration of four different equity options and futures contracts.
Strong earnings reports from Oracle and Nike encouraged investors in the wake of the recent Federal Reserve easing of interest rates.
"The Fed did the right thing," said Peter Boockvar, equity strategist at Miller Tabak."We now have a positively sloped yield curve which, for all the years I ever studied economics was supposed to be good for the economy and therefore good for the stock markets."
Oracle, the world's third-largest software maker, reported a 25% rise in quarterly profit on Thursday, boosted by higher-than-expected sales of new software. The company said its sales accelerated at the fastest pace in seven years.
"The tech sector could be worth a look in what looks to be a fairly quiet day today," said David Jones from CMC Markets.
Nikealso helped to bolster positive sentiment after the athletic shoe and clothing company said late Thursday its quarterly profit rose 51%. The company exceeded Wall Street expectations, reporting net income of $1.12 a share. Analysts surveyed by Thomson Financial expected a profit of 87 cents a share.
Shares of Texas Instruments also helped to give tech shares a boost after the chip maker said it plans to buy back another $5 billion shares and increase its regular quarterly dividend 25% to 10 cents.
Shares of Harman International fell sharply after The Wall Street Journal reported private equity buyers of the audio equipment maker are balking at completing the $8 billion purchase of the company.
The CBOE Volatility Index fell.
With no economic data and no earnings reports from major companies, investors are carefully watching developments in the currency market, where the dollar reached a fresh low against the euro and hit parity with the Canadian dollar for the first time in 31 years.
"We're going to keep watching that dollar," said Arthur Cashin, UBS director of floor operations. "Thank goodness it's stable now, but if next week is anything like this week, we could have a lot of problems."
Treasury prices rose, sending yields lower.
European stocks traded moderately higher, but soaring oil prices and a weakened U.S. dollar added to growing concerns over inflation in the world’s largest economy, while Asian markets closed mixed.
New York light sweet crude futures held steady as traders kept an eye on a potential tropical storm brewing off the west coast of Florida.
Federal Reserve Chairman Ben Bernanke offered fresh assurances that regulators would take steps to curb fallout related to the subprime mortgage mess in remarks to Congress on Thursday.
--Reuters contributed to this report.