The Dow and S&P 500 turned decisively higher in the final minutes of trading to close at their best level since December 2007 and all three major averages turned in their third-straight weekly gain.
Stocks wavered around the flatline for most of the session following a weaker-than-expected consumer sentiment report and a mixed batch of corporate earnings.
By Caroline Valetkevitch
Morgan Stanley (MS) was the latest Wall Street bank to report strong results. Its better-than-expected earnings followed similar report cards from Goldman Sachs (GS.N) and JP Morgan Chase (JPM.N) earlier in the week.
Shares of Morgan Stanley shot up 7.9 percent to $22.38. It reported a fourth-quarter profit after a year-earlier loss, helped by higher revenue at the bank's institutional securities business.
But Friday's rise was held back by shares of Intel Corp (INTC), which slumped 6.3 percent to $21.25 a day after it forecast quarterly revenue below analysts' estimates and announced plans for increased capital spending amid slow demand for personal computers.
Another factor that has been weighing on the market before a three-day weekend is uncertainty about the federal debt limit and spending cuts that could hamper U.S. growth. U.S. markets will be closed on Monday for the Martin Luther King Jr. holiday.
There were signs on Friday that the question of raising the U.S. debt limit would be put off for a while. House Republican leaders said they would seek to pass a three-month extension of federal borrowing authority next week to buy time for the Democratic-controlled Senate to pass a budget that shrinks deficits.
"It could be a big positive for the markets if we come up wih a plan of spending cuts that isn't too awfully hard on the economy," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.
The Dow Jones industrial average (^DJI) was up 53.68 points, or 0.39 percent, at 13,649.70. The Standard & Poor's 500 Index (^GSPC) was up 5.04 points, or 0.34 percent, at 1,485.98. The Nasdaq Composite Index (^IXIC) was down 1.30 points, or 0.04 percent, at 3,134.71.
The Dow and S&P 500 ended at their highest levels since December 2007. For the week, the Dow ended up 1.2 percent, the S&P 500 ended up 0.9 percent and the Nasdaq ended up 0.3 percent.
The CBOE Volatility index (.VIX), Wall Street's so-called fear gauge, fell 8.2 percent. The VIX usually moves inversely to the S&P 500 as it is used as a hedge against further market decline.
Also reporting stronger-than-expected earnings on Friday was General Electric (GE), whose shares rose 3.5 percent to $22.04.
Overall, S&P 500 fourth-quarter earnings are forecast to have risen 2.5 percent, according to Thomson Reuters data. [ID:nL1E9CI581] That estimate is above the 1.9 percent forecast from a week ago but well below the 9.9 percent fourth-quarter earnings forecast from October 1, the data showed.
Economic data from China also provided some support to the market, though the focus remained on U.S. corporate earnings. China's economy grew at a modestly faster-than-expected 7.9 percent in the fourth quarter, the latest sign the world's second-biggest economy was pulling out of a post-global financial crisis slowdown which saw it grow in 2012 at its weakest pace since 1999.
Despite the gains by Morgan Stanley, financial stocks sagged as Capital One Financial (COF) reported disappointing profit. Capital One slumped 7.5 percent to $56.99, while the KBW bank index (.BKX) slipped 0.3 percent.
Volume was roughly 6.6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the 2012 average daily closing volume of about 6.45 billion.
Advancers outpaced decliners on the NYSE by nearly 2 to 1 and on the Nasdaq by about 13 to 11.