Stocks opened higher as traders shrugged off a huge drop in payrolls and banks soared.
U.S. employers shaved 598,000 jobsfrom nonfarm payrolls last month, the most since 1974 and roughly 75,000 more than expected. At the same time, the unemployment rate shot up to 7.6 percent.
Payrolls for all of 2008 were were revised to show 3 million jobs were lost, 400,000 more than expected.
This comes a day after a report showed weekly claims for first-time unemployment benefit rose above 600,000.
Futures briefly dipped after the January jobs report but then quickly rebounded. The buzz on the trading floor was that the number may have increased because of model adjusting, prompting some traders to discount the numbers as not completely real.
"Everybody's going to start to focus on Monday now — what does the Geithner program look like and also what will the final fiscal program actually — stimulus program — turn out to be," Art Cashin, director of floor operations at UBS, told CNBC.
He added that the market has been so down, down, down that the tide may be about to shift.
"There is a massive bear-market rally building and I think it may occur shortly — maybe before St. Patrick's Day," Cashin said.
Bank of America shot up more than 15 percent after prominent analyst Dick Bove issued a note saying the current fears about the bank failing and being nationalized "make no sense whatsoever ... this bank is cash flow positive. It is not in danger of failure. Plus, the United States is now committed to keep it in business ... Plus, for the record, I have always believed and continue to believe that Ken Lewis may be the best operating manager of any bank in the United States. Moreover, I continue to think that this company has $5 per share in earnings power."
That made banks the workhorses of today's rally, with Bank of America far and away the top gainer on the Dow, followed by Citigroup and JPMorgan .
Banks also got a boost from anticipation of the government's massive stimulus plan and the plan for banks.
The Senate will resume negotiations over the now $937 billion stimulus plan today, with a vote possible between 5 and 7 p.m. ET. And Monday, Treasury Secretary Tim Geithner is expected to announce the bank plan.
Mohamed El-Erian, co-CEO of the Pimco bond fund, told CNBC that the government is going to have to deliver some "shock and awe."
"You need a shock-and-awe approach to the banking balance sheets," El-Erian, whose firm operates the world's largest bond fund, said on CNBC. "You cannot do this through multiple rounds because people lose confidence."
But Hartford Financial tumbled more than 20 percent after the bank posted a surprise loss— 72 cents a share, compared with an expected profit of $1.30 a share — and slashed its quarterly dividend from five cents to 32 cents. The bank also delivered 2009 earnings guidance well below analysts' projections.
General Electric rose 2 percent, even as one analyst said if the conglomerate loses its triple-A rating, its dividend may be next on the chopping block. (GE is the parent of CNBC.)
In fact, all 30 Dow stocks were positiveFriday.
International big-name earnings were mostly disappointing.
Toyota Motor said it was heading for its first annual net loss since 1950. A sharp drop in auto sales combined with a plunging yen to contribute to the company's difficult 2008, which the company said will end with a $3.85 billion loss.
And British Airways swung to a $100 million loss, citing the economy.
Across the globe, Asian markets finished the session mostly higher, while European indexes hovered around the unchanged mark.
Oil prices continued to drop, with US light, sweet crude dropping more than $1 to around $40 a barrel.
As traders cheered the banks and shrugged off the bad economic news, another whiff of scandal was brewing.
On Thursday, whistleblower Harry Markopolos, whose warnings about the Bernard Madoff scandal fell on deaf ears at the Securities and Exchange Commission for years, has provided the SEC's Inspector General with new information about an alleged "mini-Madoff" fraud that is still underway, CNBC has learned.