The yield of the benchmark 10-year Treasury bond backed off an overnight high of 5.25%, helping to take some pressure off of stocks. An improvement in the April trade deficit helped boost the dollar, boosting the value of bonds.
"We've been tracking the bond market over the last couple of days," said Kevin Kruszenski, head of trading at KeyBanc Capital. "The selling [in bonds] got overdone and buyers like a yield north of 5%," he said.
The Dow Jones Industrial Average gained 18 points to 13,284, as 17 of its 30 stocks advanced, led by the likes of Alcoa Inc. , General Motors Corp. and Honeywell Inc. .
Among blue chips, McDonald's Corp. led the gains, rising 1.4% after saying global same-restaurant sales rose 8.7% in May.
The S&P 500 index advanced 2.8 points to 1,493, and the Nasdaq Composite rose 11.1 points to 2,552.
Tech shares receive a lift from the chip sector. National Semiconductor jumped 11.2% after the company posted a smaller-than-expected drop in profit and said it was buying back $2 billion worth of shares. UBS upgraded the stock to buy from neutral.
Trading volumes showed 591 million shares exchanging hands on the New York Stock Exchange and 788 million trading on the Nasdaq stock market. Advancing shares outpaced decliners by 16 to 15 on the NYSE, while gainers topped decliners by 15 to 11 on the Nasdaq.
By sector, semiconductors were among the top gainers, along with airlines and broker/dealers . Oil , and natural gas and pharmaceuticals .
After dropping nearly 200 points on Thursday, the Dow industrials' losses amounted to 410 points over the past three sessions.
"The major market averages have now pulled back about 3% and are entering that target range for a typical summertime pullback of between 3% and 5%," said Marc Pado, market strategist at Cantor Fitzgerald.
"Obviously, the rocketing bond yields are disconcerting, but we are only now reaching technical support," he said. "It is possible that, once we digest the global market reaction to our selloff, we could see an attempt at a little Friday bounce."
In recent action, the benchmark 10-year Treasury bond was up 3/32 at 95 6/32, yielding 5.124%. It earlier rose to a high of 5.25%.
The bond market was under pressure overnight.
But news that the U.S. trade deficit narrowed by 6.2% in April to $58.5 billion helped boost the dollar, which in turn keeps U.S. assets such as stocks and bonds attractive for overseas investors.
This was the largest improvement in the trade gap since last October. The trade deficit was below the consensus forecast of Wall Street economists of a deficit of $63.5 billion.
The improvement in the deficit should boost second quarter gross domestic product, although there remains two months of trade data to assess for the second quarter.
Also helping bonds come off highs, Chicago Federal Reserve President Michael Moskow said on business news channel CNBC that he believes inflation expectations remain well contained, signaling that the bond market is appropriately priced.
The dollar rose sharply against the euro and was also gaining against the yen following the trade data.
Crude oil futures dropped $1.23 to $65.70 a barrel.
Gold futures fell $5.30 to $657.0 an ounce.
By Nick Godt