Wall Street ended higher, boosted by Dow component Hewlett-Packard , whose shares surged on strong results, and as comments from Federal Reserve officials allayed fears that the U.S. central bank would curtail its stimulus measures.
But for the week, the S&P 500 posted its first weekly decline for the year. Risk-associated assets have been rattled this week by suggestions the Fed could scale back its monetary support sooner than expected and by weak euro zone data that dashed hopes of an early recovery in the recession-hit region.
In a sign that some euro zone banks may still need support, the ECB said just over 61 billion euros ($81 billion) of the 530 billion it lent at the height of the bloc's crisis last year will be repaid when banks get the first opportunity next week.
That was well below the 130 billion euros expected by traders and means there remains more than enough cash in the banking system to keep downward pressure on money market rates. The news sent the euro to a six-week low against the dollar.
"The smaller-than-expected payback of loans means the ECB's balance sheet will shrink at a slower-than-expected pace," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington. It "further undermined confidence in the state of recovery in the 17-member bloc."
Stocks fared better in Europe as investors looked to take advantage of the previous session's sharp sell-off, though traders cited some caution given the elections in Italy.
The FTSEurofirst 300closed up 1.2 percent at 1,165.43, having sunk 1.5 percent on Thursday.
The Dow Jones industrial averagegained 119.95 points, or 0.86 percent, to 14,000.57. The Standard & Poor's 500 Indexended up 13.18 points, or 0.88 percent, at 1,515.60. The Nasdaq Composite Indexwas up 30.33 points, or 0.97 percent, at 3,161.82.
But for the week, the S&P 500 slipped 0.3 percent and the Nasdaq lost nearly 1 percent. Only the Dow ended the week with a gain - up just 0.1 percent.
MSCI's world share indexgained 0.6 percent. For the week, the index was off 0.5 percent.
Like equities, commodities rebounded from Thursday's big sell-off.
Brent crude rose 57 cents to settle at $114.10 a barrel, but was down 3 percent on the week. U.S. crude futures rose 29 cents to settle at $93.13 a barrel, but were down 2.8 percent this week.
FED DOWNPLAYS WORRIES
Federal Reserve Chairman Ben Bernanke downplayed worries that the Fed has fueled asset bubbles that could hurt the economy in a private meeting with bond dealers and investors earlier this month, according to a report by Bloomberg on Friday.
Bernanke's view helped ease fears that the central bank may end its easy money policies. Minutes from the Fed's January meeting hit markets on Wednesday as investors interpreted divergent opinions on the benefit of stimulus as a sign the measures may be halted sooner than thought.
"They are in uncharted territory with divergent views," said Jack Ablin, chief investment officer at BMO Private Bank in Chicago. "I could see some pretty heated opinions on what the ultimate outcome is, so I do believe there is dissension."
With Bernanke's reported comments much on their minds in Friday's session, investors will want the Fed chairman to reiterate his remarks publicly when he speaks before the Senate Banking Committee on Tuesday. That would echo comments made by two top Fed officials on Friday.
Boston Fed President Eric Rosengren and Fed Governor Jerome Powell both defended the U.S. central bank's asset-buying program, arguing that the policy helps the U.S. economy.
U.S. Treasuries prices edged higher as investors prepared for Bernanke's testimony next week.
The 10-year note was 2/32 higher in price at 100-10/32, yielding 1.964 percent, down 1 basis point from late on Thursday.
The euro fell as low as $1.3144, its lowest since January 10, retreating from a session high of $1.3244 after the German Ifo survey showed a big jump in business morale in Germany, suggesting a brighter outlook for the euro zone's largest economy.
The yen dropped against the dollar and euro, with many investors forecasting further weakness as the Bank of Japan looked set to ease monetary policy further to fight deflation.
On top of the low ECB repayment, a report from the European Commission that forecast the euro zone economy will contract again in 2013, and caution ahead of Italy's election this weekend, also weighed on the euro, which fell for a third straight session.
Adding pressure on the euro, Italians go to the polls this weekend in an election that could threaten reforms in the indebted country. Silvio Berlusconi's resurgence has thrown the vote wide open, with deep uncertainty over whether the poll can produce the strong government the country needs.
Inconclusive Greek elections last year sparked a protracted sell-off and a period of uncertainty in markets.
For the week, the euro fell 1.3 percent versus the dollar.
Against the yen, the euro rose 0.3 percent to 123.12 yen. The dollar rose 0.3 percent to 93.39 yen, not far from a 33-month high of 94.47 hit last week.
(Reporting by Angela Moon; Editing by Dan Grebler and Nick Zieminski)