"The news out of Citigroup wasn't terrific but not as bad as expected," said Paul Nolte, director of investments at Hinsdale Associates. "The market is looking at this as being halfway through, or maybe more than halfway through, the problems for financials."
A surge in crude oil to above $116 a barrel, also fueled strong gains for the energy sector.
The Dow Jones Industrial Average jumped 261 points, or 2%, to 12,881. The blue-chip average is on track for strong weekly gains of 4.5%.
Banking giant Citigroup posted a first-quarter loss of $1.02 a share, worse than the loss of 95 cents expected by analysts, but revenue exceeded expectations.
The firm also took write-downs and other losses totaling about $12 billion and reiterated a promise to continue divesting non-core assets.
Yet, its shares jumped 7.7%, with the market having already priced in a lot of the pain for the bank and for much of the ailing financial sector.
Citigroup followed solid gains scored Thursday for Merrill Lynch , which also advanced after the Wall Street firm missed forecasts but said it remains well capitalized.
The Dow also received strong support from upbeat results at equipment-maker Caterpillar Inc. , whose shares jumped 8%. Away from the Dow, Honeywell Inc. , another industrial firm, rose 5.9%.
"We're getting strong results from companies that have a bigger exposure internationally and don't have the same financial exposure than GE has," Nolte said.
Last week, the market was shocked by General Electric Co.'s surprise loss, which was largely due to the international conglomerate's financial businesses in the U.S.
The S&P 500 index gained 29 points, or 2.2%, to 1,394, while the Nasdaq Composite rose 68 points, or 2.9%, to 2,410.
Google's tech boost
Google shares surged 21% after the Internet giant posted a 31% rise in first-quarter profit to $1.31 billion late Thursday and said growth in paid clicks -- or the number of times users click on sponsored links -- was much higher than recent speculation had suggested.
With little on the economic calendar, the dollar posted solid gains on the back of Citigroup's results, adding 0.9% against a basket of major currencies.
A firmer dollar pressured commodities, but not commodities related stocks which joined in on the broad rally on Wall Street.
Oil prices reversed morning losses lower, with the May-dated light crude contract surging to a new record high above $116 a barrel amid supply disruptions in Nigeria.
Overnight, Japan's Nikkei 225 Average finished 0.6% higher Friday, bucking a broadly lower trend in Asia, while European markets moved higher.
By Nick Godt