A move by Chinese authorities to curb growth did little to dampen sentiment.
The Dow Jones Industrial Average rose 48 points to 13,524, as 22 of its 30 components advanced.
Among blue chips, Microsoft dropped 0.6% after announcing it agreed to buy internet advertising firm aQuantive in a $6 billion deal. Microsoft is paying $66.50 a share. AQuantative shares skyrocketed 77% to $63.60.
The deal comes a day after rival WPP agreed to buy 24/7 Real Media, another Internet advertising firm.
Also on the Dow, General Electric advanced 1%. GE is close to a deal to sell its plastics division for nearly $11 billion to Saudi Basic Industries Corp., according to reports in The Wall Street Journal and The New York Times.
And Intel Corp. jumped 2.3% after Merrill Lynch upgraded the stock.
Verizon Communications gained 1.4%. The telecom firm was upgraded to buy from sell at Citigroup, which said near-term earnings risks have been minimized and earnings-per-share growth should override capital spending concerns.
The S&P 500 index was up 4 points at 1,517, while the Nasdaq Composite gained 6 points to 2,545.
M&A, buyouts fuel market
Mergers & Acquisitions and private-equity buyout activity, already running at a breakneck pace this year, has accelerated in recent weeks, with many investors citing it as the key engine of the market's rally.
Also on Friday, the Wall Street Journal reported that Royal Bank of Scotland and Bank of America are in talks to settle their dispute over who will buy ABN Amro's LaSalle.
Trump Entertainment jumped 15% after saying it's received indications of interest to buy the Atlantic City, N.J. company.
CapitalSource agreed to buy Nebraska lender TierOne in a $652 million cash-and-stock deal. TierOne shares jumped over 32%.
And Clear Channel Communications agreed to back a new offer from Bain Capital and Thomas H. Lee Partners.
Cadbury Schweppes gained 1.7% after reports about interest in its U.S. soft drinks unit that's it put on the block.
On the economic front, the University of Michigan's consumer confidence gauge for May could decline as the impact from recent stock-market gains is offset by gasoline price hikes.
Bonds advanced ahead of the data, with the benchmark 10-year Treasury bond rising 2/32 to 98 1/32 in price, while its yield, which moves inversely fell to 4.752%.
Meanwhile, the yen rose across the board against the U.S. dollar after Chinese authorities hiked interest rates and widened the band in which the yuan can trade vs. the dollar.
Starting Saturday, the yuan can move 0.5% in either direction a day, against previous rules limiting the move to 0.3% a day. The more the yuan rises, the less competitive Chinese imports into the U.S. will be.
The Japanese yen, which frequently acts as a proxy for the yuan, rose 0.2% against the dollar, with gains tempered by expectations that Chinese authorities were about to act.
Crude-oil futures rose 29 cents to $65.15 a barrel amid continued concerns about gasoline supplies as well as recent refinery outages.
Gold also advanced as the dollar fell. Gold futures rose 50 cents to $657.70 an ounce.
By Nick Godt