Japan, Australia Lead Gains in Asia Relief Rally

Asian stocks rebounded on Friday following the previous day's savage sell-off as strong U.S. data lifted confidence about the ability of the world's largest economy to withstand any pullback in monetary stimulus. However, sentiment remained tense ahead of next week's Federal Reserve policy meeting.

The Nikkei closed up almost 2 percent after rising as much as 3 percent, one day after a steep 6.4 percent plunge. Australia's S&P ASX 200 also finished 2 percent higher, and Seoul's Kospi rebounded from a seven-week low hit the previous day. Meanwhile, the Shanghai Composite added 0.3 percent to rise from Thursday's fresh 2013 low.

For the week, the Shanghai Composite was Asia's worst performing index with a loss of 2.4 percent, but the index was only open for two trading days this week. The Nikkei ended the week down 1.5 percent.

Upbeat retail sales and unemployment claims data in the U.S. triggered a rally on Wall Street overnight and soothed nervous Asian markets.

(Read More: Why the Fed Will Try to Calm Market Nerves)

Market Moving Factors

Currency moves remain a concern after dollar-yen moved in and out of the 95-handle in choppy trade, but still remained well-off from Thursday's 10-week trough of 93.75.

Markets digested minutes from the Bank of Japan's (BOJ) May 21-22 policy meeting. Members of the central bank stated that monetary stimulus should be limited to two years due to possible financial imbalances. One member also said that limited stimulus may help stabilize the volatile Japanese government bond (JGB) market.

(Read More: Is an Overconfident BOJ to Blame for Market Woes?)

Meanwhile, Japan's cabinet approved a government plan of major investment tax breaks on Friday, in a move designed to slash investment taxes for corporates and encourage investment. In a video message, Prime Minister Shinzo Abe promised to take more steps after next month's upper house elections.

Nikkei Up 1.94%

With Friday's gains, the index is now down 20 percent from from last month's five-and-a-half-year high of 15,942, which still technically places the index in bear market territory.

Real estate stocks led the recovery with Mitsubishi Estate and Mitsui Fudosan up 6 percent each while electric power supplier Kansai Electric Power rallied 7 percent.

(Read More: What Japan Can Teach the Fed About QE Addiction)

Exporters licked some of their wounds with automaker Suzuki Motor rebounding over 1 percent following a 5 percent loss in the previous session.

Australia Rallies 2%

Australia's equity market posted broad-based gains after falling to its lowest levels since January on Thursday. The Relative Strength Index (RSI) for the benchmark index jumped 10 points to 31 from the previous day's reading of 21. An index is considered oversold when its RSI falls below 30.

Banks rose with a 3.6 percent rally in National Australia Bank, but mining stocks were the session's out-performers after iron ore prices rose above $112 per ton. Fortescue Metals added 5 percent, while Rio Tinto rose 4.6 percent.

Meanwhile, the Aussie dollar hovered near the $0.96 handle against the greenback after rising 2 percent overnight.

Shanghai Off Lows

China's benchmark index added 0.6 percent to close above the 2,160 level, but still traded well below its 200-day simple moving average of 2,188 points.

(Read More: China Gets the Post-Holiday Blues as Stocks Slump)

Infrastructure stocks were big gainers with Fujian Cement and Long Yuan Construction up by 1 percent each.

Seoul Recovers 0.3%

Seoul's benchmark index snapped a three-day losing streak after falling to its lowest level for 2013 in the previous session as investors went bargain hunting for battered exporter stocks. Still, the index closed below the key 1,900 level and posted a loss of 1.8 percent for the week.

After six consecutive sessions of heavy selling, shares of market heavyweight Samsung Electronics gained 1 percent. The stock plunged to a seven-month low on Thursday.

Automaker Kia Motors also rose 1 percent, finally benefiting from a stronger Japanese yen.

By CNBC.com's Nyshka Chandran. Follow her on Twitter @NyshkaCNBC