After briefly dipping into negative territory in late morning, stocks gained steam in the afternoon as yields on the 10-year Treasury note backed off five-year highs of 5.25 percent. As stocks closed Friday, yields on the benchmark note hovered around 5.11 percent.
Yields, which move in the opposite direction as bond prices, rose during the week as investors grew less optimistic that the Federal Reserve would lower short-term interest rates. A move above the 5 percent level Thursday in the 10-year bond yield sent stock market investors rushing to bonds.
"The fact that it rallied the last two hours of the day (Friday) showed people were coming in buying what they thought were pretty good bargains," said Ryan Detrick, senior technical analyst at Schaeffer's Investment Research.
The Dow industrials rose 157.66, or 1.19 percent, to 13,424.39.
Broader stock indicators rose. The S&P 500 advanced 16.95, or 1.14 percent, to 1,507.67, and the Nasdaq composite index rose 32.16, or 1.27 percent, to 2,573.54.
For the week, the Dow lost 1.78 percent, the S&P 500 lost 1.87 percent and the Nasdaq fell 1.54 percent. Before stocks regained some ground Friday, the major indexes had each lost nearly 3 percent in what was the biggest three-session decline since a short-lived pullback that began Feb. 27.
"It definitely was a down week, but investors tend to have a short-term memory," Detrick said. "They just remember the good Friday. This three-day dip might be nothing more than a solid buying opportunity."
Still, the week's swings had some investors wondering whether an extended rise in interest rates would cork the huge flow of takeover activity that, according to financial data provider Dealogic, has been on pace to beat last year's record $4 trillion.
"We haven't had any major buyouts in the last week, and I think it's directly related to the higher interest rates we've seen," Detrick said.
While companies and investors might have felt less acquisitive than in recent months, some dealmakers saw fit to plow ahead.
Biomet Inc. said Thursday a private equity consortium upped its bid for the maker of orthopedic products by 4.5 percent from $10.9 billion to $11.4 billion. Biomet on Friday slipped 7 cents to $45.49.
Tyco International Ltd. said its board has formally approved the industrial conglomerate's breakup into three companies through a tax-free dividend distribution to shareholders. Tyco rose $1.17, or 3.6 percent, to $33.80.
In other corporate news, McDonald's Corp. rose $1.20, or 2.4 percent, to $51.41 after the world's largest fast-food chain said its global same-store sales, or sales at restaurants open at least 13 months, rose 8.7 percent in May.
National Semiconductor Corp. jumped $3.79, or 15 percent, to $29.58 after increased orders and stronger profit margins helped the chipmaker post better-than-expected fiscal fourth-quarter earnings.
The dollar rose against other major currencies, while gold prices fell.
Oil futures fell sharply after a cyclone spared major oil installations in the Gulf of Oman and eased supply concerns. Light, sweet crude for July delivery settled down $2.17 at $64.76 per barrel on the New York Mercantile Exchange.
Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.56 billion shares compared with a heavy 1.91 billion seen Thursday.
The Russell 2000 index of smaller companies rose 9.99, or 1.21 percent, to 835.31.
After U.S. stocks' big sell-off on Thursday, Japan's Nikkei stock average fell 1.52 percent, Hong Kong's Hang Seng Index dropped 1.4 percent, Singapore's stock market lost 1.2 percent, and Australian stocks declined 1.3 percent. China's benchmark Shanghai Composite Index rose 0.6 percent, however, its fourth straight gain.
In European trading, Britain's FTSE 100 ended flat, Germany's DAX index fell 0.37 percent, and France's CAC-40 fell 0.12 percent.