Stocks ended a dismal week on an up note as investors took some defensive positions in stocks like McDonald's amid nagging worries about the health of banks.
The Dow Jones Industrial Average rose 68.73, or 0.8 percent, to close at 8281.22. The S&P 500gained 0.7 percentand the Nasdaq advanced 1.2 percent.
For the week, however, the Dow shed 3.7 percent, the S&P lost 4.5 percent and the Nasdaq skidded 2.7 percent.
And, volatility has picked up: The CBOE volatility indexjumped nearly 8 percent this week.
McDonald's jumped nearly 3 percent, making it one of the day's biggest gainers on the Dow after CEO Jim Skinner said he expected the fast-food chain to keep paying dividends.
That trend was obvious in the weekly stats: Comfort-food conglomerate Kraft was the Dow's best performer, up more than 3 percent, while Bank of America was the biggest drag, down almost 45 percent.
All 10 of the key S&P sector indexes declined this week, with financials hit hardest, down more than 16 percent, and health-care the least negative, down just 0.3 percent.
Worries about earnings started early this week when Alcoa kicked things off with a thud: The aluminum maker, which is slashing 15,000 jobs, reported a loss of $1.19 billion and a 19-percent drop in sales, falling well short of expectations.
It was long about Wednesday that reality started to set in: The Dow and S&P were off to their worst start to a new year EVER, with the Dow shedding 10 percent in six sessions.
Banks have taken a beating all over the world this week amid a fresh wave of fear about epic losses out of the sector.
Bank of America took it particularly hard as dismal results and news of a $20 billion bailout from the government raised concern that the impact of toxic assets from Merrill Lynch was taking a bigger toll than previously expected.
The bailout makes Bank of America the biggest recipient of taxpayer money after Citigroup.
Bank of America racked up a loss of 48 cents a share for the fourth quarter, much larger than the 8-cent-a-share loss expected. The bank also slashed its dividend to a penny a share.
Moody's cut its credit rating on both Bank of America and Merrill Lynch and said it was considering slashing its rating on Citigroup as well.
Citigroup also reported a loss that ballooned past expectations and said it would reorganize into two different units, separating its banks from the risky assets on its books.
American depositary shares of Barclays fell 14 percent as its loss came in worse than expected and worries escalated about U.K. banks.
And, there was a new round of layoffs to add another layer of gloom to the market: GE Capital, which is owned by CNBC parent General Electric , is expected to cut up to 11,000 jobs; ConocoPhillips is reducing its work force by 4 percent; and Pfizer is slashing up to 2,400 jobs.
Intel was one of the top gainers on the Dow today, climbing 3.4 percent, as earnings met expectations. However, the expectations weren't that high: Earnings actually fell 90 percent and the chip maker tempered its outlook for the current quarter.
For the week, Apple was the biggest drag on the Nasdaq 100, falling more than 9 percent, amid concerns about the company's future after CEO Steve Jobs announced plans to take a six-month medical leave.
Ford shares shed nearly 2 percent today after the company clarified that it was in talks with the government about ways to juice liquidity, NOT in talks to get bailout money as erroneously reported.
Of course, that doesn't mean it was all smooth road in auto land: Auto-parts marker Johnson Controls reported a larger-than-expected lossas production volumes fell, and the company predicted more of the same ahead. Shares fell.
And Toyota said late on Thursday it would reduce production at several North American plants over the next few months trying to cut its vehicle inventory in half.
In economic news, consumer sentiment improved slightlyin a mid-January reading to 61.9 from 60.1 at the end of December. Consumer prices fell 0.7 percentin December, better than the 0.9-percent decline expected, while the annual pace of consumer-price inflation was the slowest in more than 50 years. Industrial production dropped by a bigger-than-expected 2 percent in December.
Crude oil rose today but shed 11 percent for the week, settling at $36.51 a barrel.
Next week is a short week with the Martin Luther King Jr. holiday on Monday and a focus on President-elect Obama's inauguration but earnings will really kick into high gear, with some key reports out of the tech sector, including Apple, Microsoft and Google .
On Tap for Next Week:
MONDAY: All U.S. financial markets closed for Martin Luther King Jr. holiday
TUESDAY: Obama inauguration day; Earnings from J&J, IBM, CSX
WEDNESDAY: Weekly mortgage applications; Earnings from United Tech, Abbott Labs, Northern Trust, US Bancorp; Burlington Northern
THURSDAY: Housing starts; jobless claims; crude inventories; Earnings from Nokia, Fifth Third Bancorp; KeyCorp; Southwest Air; SunTrust Banks; United Health, Union Pacific, Microsoft, AMD, Capital One
FRIDAY: Natural-gas inventories; Earnings from GE, Harley-Davidson and Xerox
ALL WEEK: Detroit Auto Show (Jan. 11-25)