Stocks added to gains in the final hour of the session after starting the week in a sharp slide in the wake of Standard & Poor's revised outlook for U.S. long-term debt as largely positive earnings propelled stocks higher.
Among Dow components, Travelers, IBM and Alcoa gained, while Verizon and Pfizer fell.
The S&P 500 and the Nasdaq also rose. The CBOE Volatility Indexfell below 15, nearing lows from June 2007.
Most key S&P 500 sectors gained, led by materials and technology.
"After a bit of a rough start with names like Bank America , Google and Alcoa , companies are starting to come through with solid reports, as investors had expected," said Michael Sheldon, chief market strategist at RDM Financial.
More companies have been beating on the top line instead of the bottom, indicating they are still able to increase their profit margins, Sheldon said.
"There's a large debate going on about how much higher margins can go to help boost profits since we’re already at or near record levels," he added. "I think as we go along for the next couple quarters and into 2012 especially, corporate earnings will be driven by revenue growth as opposed to increases in margins."
So far, earnings are up 18.2 percent for the 137 companies that have reported so far (representing 27 percent of all S&P 500 companies), according to Thomson Reuters. Of the firms that have reported, 75 percent have delivered results ahead of estimates, Thomson Reuters said.
S&P revised its outlook for U.S. debt to "negative" from "stable" because of the inability of lawmakers to tackle the nation's rising deficit. That question will take center stage in hte markets again before long, but Raj Mahajan, president, of SunGard Global Trading, says markets are likely to remain wobbly until investors know whether Congress will be taking its cues from Sen. Paul Ryan's plan, which calls for deep budget cuts, or President Obama's plan, which calls for some tax increases and reinvestment in the country infrastructure.
"Until the market knows the answer to that question, we’ll have a sustained period of choppiness," Mahajan said.
Pfizer took a hit in mid-afternoon trading after reports thatfour patients died in a clinical trialof an experimental treatment for rheumatoid arthritis, Dow Jones reported. Abbott Labs , which has a competing drug, gained.
Verizon sank despite reporting strong growth, helped by sales of the iPhone as investors focused on the implications for Verizon's profit margins, which dropped, and the fact Verizon didn't add as many iPhone subscribers as analysts had expected, according to Reuters.
General Electric slid despite delivering an 80 percent gain in first-quarter earningsand raising its quarterly dividend by 1 cent to 15 cents, its third hike since July. The diversified manufacturer benefited from a boost in business spending, but some analysts noted that the firm's revenue results may have been inflated by a longer fiscal calendar. GE is a minority shareholder in CNBC.
And McDonald's fell despite beating expectations on strong sales throughout all regionsas the fast-food chain said it planned small price increases to cover some, but all, of its increased food costs, Reuters said.
But Travelers, however, soared after reporting a 30 percent jump in profitsThursday, thanks to a gain in investment income. Net profit rose to $839 million, or $1.92 a share, from $647 million, or $1.25 a share, a year earlier. The insurer raised its dividend 14 percent to 41 cents a share.
Morgan Stanley jumped despite a drop in profit as its results beat expectations.
Dupont gained after reporting a 27 percent rise in quarterly profits, thanks to double-digit sales growth in all of its business units.
And Schlumberger advanced after reporting a 40 percent gain in first quarter profits, although the results were slightly less than expected. The company gave an upbeat outlook, though.
The tech rally continued after the market closed on Wednesday when Appledelivered results powered by sales of iPhones and Macs that easily topped what analysts had expected.