The major U.S. averages ended the week more than half a percent higher or more, with the Nasdaq composite the best performer, up nearly 2.3 percent for the week.
"I think this week's rally's (was) largely due to short covering," said Joe Sowin, head of global equity trading at Highland Capital Management, noting that since stocks hit their lows on Wednesday, beaten-down sectors such as energy and materials have led much of the recovery.
He's watching earnings reports next week to see if corporate fundamentals can support further gains in stocks.
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After closing the week with gains, U.S. stocks were still sharply lower for the year so far. As of the close Friday, the major U.S. averages were down about 6.5 percent or more for 2016 and more than 10 percent below their 52-week intraday highs, in correction territory.
"You're seeing a lot of action that's almost an overreaction to this recession fear. … . Despite whatever Draghi does or China and those recession fears grow — and the market seems to be taking oil as an indicator of that — stocks are going to get hit," said Bernie Williams, chief investment officer at USAA Investment Solutions. He noted stocks are also "a little overvalued here" and that fundamentals do not warrant concerns about a severe economic downturn.
U.S. data out Friday included the January U.S. Markit Flash Manufacturing PMI, which came in at 52.7, in expansion territory and above the final December print of 51.2.
Existing home sales in December jumped a record 14.7 percent to an annual rate of 5.46 million units, after being temporarily held back by the introduction of new mortgage disclosure rules, which had caused delays in the closing of contracts in November, the National Association of Realtors said Friday.
The Chicago Fed December National Activity Index came in at minus 0.22, versus November's negative 0.36 read.
December U.S. leading indicators fell 0.2 percent.
Treasury yields held higher, with the 2-year yield at 0.87 percent and the 10-year yield at 2.05 percent, as of 1:42 p.m. ET.
"Data in the real economy softened in the fourth quarter and they softened more than expected. ... (There's) an increase in the warning signs. What that means is the chance of recession in 2017 has increased," said Timothy Hopper, chief economist at TIAA-CREF.
"The base case remains that the economy, while weak, will get better, and if that's the case, the Fed resumes tightening," he said.
The Federal Reserve meets next week but is not expected to raise rates until at least June, according to CME's FedWatch tool.
"It's all a game of expectations," said Nick Raich, CEO of The Earnings Scout. "If you price in a recession and a recession doesn't come, that's positive for stocks."
General Electric reported earnings that beat by 3 cents, but revenue missed, pressured by a strong dollar and a delay in some shipments in power and renewables to 2016 from 2015. The stock closed down 1.2 percent.
Starbucks eked out a 0.2 percent gain giving softer-than-expected current quarter outlook. The coffee chain did beat estimates by 1 cent on revenue that was roughly in line.
The Dow Jones industrial average closed up 210 points, or 1.33 percent, to 16,093.51, with Apple leading advancers and American Express, GE and IBM the only decliners.
The Dow gained 0.66 percent for the week, with Verizon the top performer and American Express the worst.
The S&P 500 closed up 37.91 points, or 2.03 percent, at 1,096.90, with energy leading all 10 sectors higher.
The index closed up 1.41 percent for the week, with telecommunications the top gainer and financials the worst performer.
The Nasdaq composite closed up 119.12 points, or 2.66 percent, at 4,591.18.
The Nasdaq gained 2.29 percent for the week.
The Dow transports closed up 1.32 percent, up 1.34 percent for the week.
The Russell 2000 gained more than 2 percent, up nearly 1.3 percent for the week.
The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, declined to below 22.5
About nine stocks advanced for every decliner on the New York Stock Exchange, with an exchange volume of nearly 1.2 billion and a composite volume of nearly 4.9 billion.
High-frequency trading accounted for 49 percent of January's daily trading volume of about 9.51 billion shares, according to TABB Group. During the peak levels of high-frequency trading in 2009, about 61 percent of 9.8 billion of average daily shares traded were executed by high-frequency traders.
Gold futures for February delivery settled down $1.90 at $1,096.30 an ounce.
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—CNBC's Peter Schacknow and Reuters contributed to this report.
Correction: This story has been updated to reflect that the ECB rate decision was made Thursday.