Stocks climbed in the last hour of trading as sectors that had been beaten up during the week regained ground, despite a devastating earthquake in Japan.
Dow Jones Industrial Average advanced more than 60 points, rising solidly above 12,000, after plunging 228 points on Thursdayamid global concerns.
Among Dow components, 3M and Caterpillar gained, while Verizon and AT&T fell.
The S&P 500 advanced 0.8 percent, above 1,300, while the tech-heavy Nasdaq also gained. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell more than 6 percent to nearly 20.
Among key S&P 500 sectors, energy, materials and industrials rose, while telecom fell.
The U.S. equity markets have had a muted reaction to the Japanese quake on fairly light volume, as equity markets treaded water throughout most of the session.
Still, the market is at a "crucial spot" technically, as the S&P 500 is just sitting above its 50-day moving average of 1,300.13, Joseph Benanti, managing director at Rosenblatt Securities, told CNBC.com. "If we close lower, we’ll see a follow through in the early part of next week," he said.
That softness could continue until the Federal Open Market Committee's announcement next Tuesday, where traders will look for a sense of the Fed's current thinking on its $600 billion bond buying program known as "quantitative easing 2."
"I think people are watching and waiting to see what happens next week," Benanti said.
Over the weekend, traders will remain focused on events in the Middle East, and its implications for oil prices, as well as the news flow out of Japan.
"Everybody's watching what's happening over the weekend," another trader said. "Nobody wants to make a bet one way or the other."
The earthquake in Japan, which triggered a tsunamithat swept across the northern coast of Japan and hit the coast of Hawaii and Northern California. The news rattled stocks, currencies, and oil at the start of the session. Most Japanese ADRs traded lower, while the yen first fell sharply lower, then rose as traders remembered how strongly the yen performed after a quake in 1995. Currency Shares Japan Yen Trust rose slightly.(Read more: Massive Quake Whipsaws the Yen).
Investors also focused on news of increased inflation in China, although the 4.9 percent rise was less than some had feared.
Treasury prices fell as traders feared Japan, the second largest foreign holder of U.S. Treasurys, would need to sell notes and bonds to fund rebuilding of the country, according to Jack Ablin, chief investment officer at Harris Private Bank. The 10-year Treasury added 26/32 points this week, pushing its yield to 3.397 percent.
Shares of oil ended lower, although U.S. light sweet crude closed above $100 a barrel for the eight consecutive session. London Brent crude closed below $114. While the earthquake will lead to a near-term reduction in global demand, traders remain nervous about the direction of events in the Middle East and Libya, where intense fighting continued.
According to Lipow Oil Associates, 18 percent of Japan's oil refinery capacity shut down.
Companies in Japan are starting to assess the damage of the earthquake and flooding. But,
Nissan reports there was damage at four of its plants while Toyota also stopped output at some of its plants.
Steel stocks gave a lift to the materials sector after news Steel Dynamics expected first quarter earnings to rise from a year ago. The steelmaker's board also approved a 33 percent boost to its quarterly dividend. Rival steel stocks gained, including AK Steel ,U.S. Steel , and Nucor .
As oil prices fell—but stayed at relatively high levels—energy stocks soared. Tesoro , Valero and Nabors shot higher.
In company news, Apple’s iPad2 goes on sale Friday, less than a year after the original iPad debut. The original iPad sold 300,000 units the first day, 500,000 the first week, and 1,000,000 in the first 28 days.
and Aeropostale will also be in the spotlight after shares in both companies fell in extended trading Thursday following disappointing earnings reports.
Medtronic fell after the company said U.S. health regulators rejected a product it was developing to stimulate bone growth.
And AIG gained after news the insurer offered to buy back $15.7 billion in mortgage-backed securities the government took from the insurer during the financial crisis. AIG is paying for the securities with cash.
Among retail stocks, Ann Taylor soared after reporting strong fourth-quarter earnings.
Gold lost some of its luster this week, falling 0.47 percent to $1,421.50. The dollar, meanwhile, fell against a basket of currencies.
"By and large the stock market has acted pretty well given the increasing headwinds it's seen over the past few weeks," said Michael Sheldon, chief market strategist at RDM Financial Group. "Anytime the market is up 100 percent in the space of 24 months it’s certainty reasonable to see some profit taking, and that seems to be what we’ve experienced in recent sessions."
Sheldon added that he wouldn't be surprised to see the markets dip a few percentage points lower over the next few weeks, and said the direction of oil prices will continue to play a key role in the market's direction. But, he said, "if job creation continues to improve, that will be a very positive sign for the U.S. economy."
In U.S. economic news, the Thomson Reuters/University of Michigan reading on consumer sentiment fell to 68.2 in March, a five-month low,from a revised 77.5 in February.
Business inventories rose 0.9 percent in January, the highest level in two years, compared with a 1.1 percent gain in December, the Commerce Department reported. Business sales rose 2.0 percent in January, the fastest pace in nine months, compared with a 1.6 percent gain in December. Economists polled by Reuters had expected inventories to rise 0.7 percent.
Also retail sales rose 1.0 percent in February, up from 0.7 percent in January, the Commerce Department reported. The gain was the biggest since October, and in line with expectations of economists surveyed by Reuters.
In Europe, investors will turn their attention to a meeting of the leaders of the 17 countries that share the euro later on Friday. They will discuss the bloc’s response to violence in Libya as well as the debt crisis that has hit the region’s peripheral nations.
On Tap Next Week:
MONDAY: Microsoft releases new version of Internet Explorer, Chevron analyst meeting, and HP "summit."
TUESDAY: Credit card default rates, Empire state manufacturing survey, import & export prices, housing market index, and FOMC meeting announcement.
WEDNESDAY: Mortgage applications, housing starts, producer price index, current account, and oil inventories.
THURSDAY: Consumer price index, jobless claims, industrial production, leading indicators, Philadelphia Fed survey, natural gas inventories, money supply; before-the-bell earnings from FedEx and Lululemon; after-the-bell earnings from Nike.
FRIDAY: Quadruple witching; before-the-bell earnings from Allianz.