Stocks closed with broad gains as investors bought up large cap stocks, shrugging off a 3% gain in oil prices and heightened sensitivity over the Fed's interest rate policy.
"We're not going to get a boost from energy prices but we have some stealth support, like share buybacks, M&A activity that hasn't peaked, and companies that have been raising their dividends," said Brian Gendreau, investment strategist at ING Investment, told CNBC.com. "The market is clawing back a little bit after yesterday."
The Dow's gains were fueled in part by big pharma heavyweights Pfizer and Merck, which both rose ahead of a key FDA advisory panel meeting. Merck is seeking regulatory approval of Arcoxia, a successor to Vioxx, the pain treatment pulled from the market due to safety issues. Pfizer currently sells a similar drug called Celebrex.
After the close of trading, however, the panel recommended the FDA reject Merck's drug, voting 20 to 1 against approval. The FDA is not required to follow the advice of the independent committee but usually does. Merck shares declined 0.8% in after-hours trading after closing the regular session up 1.5%, while Pfizer added 0.3% to Thursday's gain of 1.6%.
Health care stocks were the best performing sector in the S&P 500 while financial stocks lagged the overall market. Breadth was positive with gainers outpacing decliners by nearly two to one on the NYSE.
"People are looking for a little bit of value, particularly in the large cap sector," Dan McMahon, head of listed trading at CIBC World Markets, told CNBC.com. "The bias is to the upside so it's perfectly logical that we drift higher. It's not a huge move but we stopped the bleeding today."
The Dow Jones Transportation Average rose more than 1.5% despite an increase in oil prices, as railroad companies added to recent gains after billionaire investor Warren Buffett's Berkshire Hathaway disclosed an almost 11% stake in Burlington Northern Santa Fe .
New York light crude futures closed up 3% at $63.85 a barrel after natural gas inventories came in consistent with expectations.
MedImmune shares surged more than 14%, providing a lift to the health care sector, after the specialty drugmaker said it will entertain buyout offers. The stock was the best daily performer in the Nasdaq-100.
BlackBerry maker Research In Motion closed sharply lower after the company reported fourth-quarter earnings Wednesday afternoon which missed consensus estimates.
Investors worries of a possible rate increase by the Federal Reserve eased from Wednesday, when the Fed released minutes from its last meeting. Policymakers remain focused on inflation despite signs of a slowing economy.
"There was absolutely nothing new in those minutes," said Scott Wren, senior equity strategist at A.G. Edwards. "There's a rebound today ... if the Dow wasn't up eight straight days in a row I don't think you would've seen yesterday's decline."
Major U.S. retailers such as Wal-Mart Stores reported strong same-store monthly sales data. Wal-Mart announced a monthly increase of 4% in March sales at U.S. stores open at least a year, topping analysts' estimate of 1.6%.
"Retail sales numbers were very strong this morning so that offered some underlying support to the market overall," Marc Pado, chief market strategist at Cantor Fitzgerald, told CNBC.com. "The market has been acting pretty resilient, I'm pretty impressed with how the internals have acted."
Genentech shares fell after the company reported sales growth of cancer drugs Rituxan and Herceptin below Wall Street estimates.
Treasury prices rose, sending yields lower.
European Stocks End Flat, Asia Mixed
The London FTSE-100, closed with a tiny gain while the Paris CAC-40 and Frankfurt DAX ended just below the flat line after the European Central Bank kept interest rates steady at 3.75%, as expected.
In merger news, Switzerland-based food and beverage company Nestle confirmed a long-anticipated $5.5 billion cash deal to buy U.S. baby-food maker Gerber from Novartis . The acquisition furthers Nestle strategic move into the nutrition business.
French retailer Carrefour reported a 5.2% rise in first-quarter sales and reiterated its willingness to review its large property assets to boost shareholder value.
The Nikkei 225 Average closed lower as Canon and other exporters dropped on concern about the U.S. economy, and slowing trade volume put shares of brokerage firms under pressure. Taiyo Yuden fell on news of its plan to offer 20 billion yen in convertible debt.
South Korea's Kospi Index set its seventh consecutive record as shipbuilders gained on new orders, while retailers rose after the central bank governor said domestic demand was looking better than expected.