Stocks closed sharply higher on Friday as bargain hunters helped the market snap a three-day selloff.
"Bond yields have been rising and people stepped back from the market but came back in today and invested money that was piling up on the sidelines in the past couple of days," said David Goerz, chief investment officer at HighMark Capital.
The Dow Jones Industrial Average and the S&P 500 each saw gains of more than 1.1% while the Nasdaq Composite rose 1.2% on strength in chip stocks. It was the twelfth straight week the Dow has closed Friday higher. The last time the Dow closed down a Friday was March 16.
But the averages still finished down for the week. The Dow fell 1.8%, while the S&P 500 dropped 1.9% and the Nasdaq declined 1.5%.
"It's a little short covering on a Friday along with a little bargain hunting," said Jay Suskind, head of trading at Ryan Beck. "The market has been obviously down and we didn't see the big downdraft that some were expecting today so there's a little stability now."
Breadth was positive with advancing stocks outpacing decliners by more than two to one on the NYSE.
Technology stocks were boosted by a strong earnings report from National Semiconductor. Chip bellwether Intel posted the second-best daily gain among Dow components, rising 2.4%. Telecom, basic materials and financial stocks also rebounded strongly on Friday.
The tech sector posted the best weekly sector performance, declining 1.0%. Not so for the interest-rate sensitive utilities, which dropped 5.4% this week, followed by materials and health care, which both posted weekly declines of 2.4%.
Big moves in the fixed income market have rattled equity investors this week, since rising interest rates do not bode well for corporate earnings or debt-funded mergers and acquisitions.
"We've seen frequent takeovers lately and that's because of the easy money, but now that's going to be a problem for these guys," said Mike Larson, an analyst with Weiss Research. "If this continues you will have problems there."
The 10-year Treasury yield rose overnight to trade just below 5.25% at one point on fears the Federal Reserve would rekindle its interest-rate tightening cycle. That was a five-year high.
Falling bond prices even saw long-term bond bull Bill Gross upping his yield target for the 10-year to 6.5% from 5.5%, turning bearish on the bond market after 25 years of bullish forecasts. Gross told CNBC on Friday that the next move in the bond market will be the widening of corporate bond spreads, and added that rising rates will decimate the housing market "if they haven't already."
Shares of National Semiconductor closed at a new high after the chip outfit posted quarterly results above analysts' expectations.
Mastercard shares jumped after a federal judge ruled that a settlement service fee instituted by rival Visa was unlawful. "This is a significant win for Mastercard and it's customers," the company said in a release.
McDonald's gained after reporting its biggest increase in monthly comparable sales in more than three years. The world's largest restaurant chain said sales rose 8.7% in May at restaurants open at least 13 months, topping analysts' forecasts of 5%.
The future of LaSalle bank was in the spotlight as Bank of America accused a Dutch court of unlawfully blocking its $21 billion purchase of the bank owned by ABN Amro. Barclays President Bob Diamond told CNBC that he expects the sale of LaSalle to go through. Diamond also said he was "quietly confident" of Barclays' $84.6 billion offer for ABN Amro.
New York light sweet crude futures fell below $67 a barrel after a big gain on Thursday amid concerns that U.S. refineries are not producing enough gasoline to meet summer demand.
Earlier today, Chicago Federal Reserve President Michael Moskow said in an exclusive CNBC interview the Fed still sees inflation as the dominant risk to the U.S. economy, but that inflation expectations currently seem well contained. Moskow also said growth in the second quarter should be much stronger than the first quarter.
European Stocks Off Lows
European stocks were off of earlier lows after concerns about rising interest rates weighed on global markets.
The London FTSE-100, the Paris CAC-40 and Frankfurt DAX edged into positive teritory.
Despite concerns the era of cheap money is over, consolidation speculation continued in the banking sector, with Societe Generale mulling a merger with BNP Paribas, according to Les Echos newspaper.
Shares in InterContinental Hotels Group gained 1%, leading gainers the FTSE 100, amid speculation property and investment tycoons the Barclays brothers might bid for the world's largest hotelier.
British bank Lloyds TSB announced it expects underlying profit to rise by at least 10% in the first half of the year, but the news couldn't pull the company's stock up from the overall weakness of the European stock markets.
Asian Markets Slide
Asian stocks continued to slide in the afternoon session Friday as U.S. Treasury yields rose after their biggest one-day surge in three years on worries that interest rates around the world are heading higher. Japan and South Korea both closed with declines wider than 1%.
Tokyo's Nikkei 225 Average closed 1.5% down as concerns about rising interest rates hit property firms, often laden with debt, and Honda Motor and other exporters slipped after U.S. and European stocks fell. Credit Saison and other consumer finance firms came under pressure on similar borrowing-cost worries. The sector was also pressured after analysts highlighted a Supreme Court ruling on excess interest payments, which they said could make consumer lenders' losses much bigger than first thought.
The Kospi Index shed almost 1.5%, ending an eight-session winning streak. Government bond yields rose, hitting financial shares such as Kookmin Bank , although exporters such as Hyundai Motor extended this week's rally, helped after the South Korean won currency weakened.
China's Shanghai Composite Index weaved in and out of positive territory with the banking sector soft on worries about a possible hike in interest rates. But a blizzard of positive commentary about stocks in state-owned media was seen as more evidence that authorities did not want a further sharp drop of the market and supported stocks.
Hong Kong's Hang Seng index fell on inflation concerns, with rate-sensitive property shares hit hard. Investors sold stocks across the board, with all 39 blue chips down by lunch. Singapore shares were also lower.