Oil bounced from 18-month lows on Friday as investors shifted their focus to efforts to resolve Europe's debt crisis, while U.S. stocks rebounded from the second-worst decline of the year.
The euro firmed against the dollar after the European Central Bank said it would accept lower-quality assets as collateral in a move to aid the region's shaky banks.
Investors worry that Europe's debt crisis is adding to the slowdown in global economic growth, especially after a spate of data on Thursday showing weakness in global manufacturing. European stocks ended lower for the day after data showed a drop in German business sentiment.
The leaders of Germany, France, Italy and Spain agreed on Friday on a 130 billion euro package to revive economic growth in Europe but split over issuing joint bonds to combat the euro zone's debt crisis.
After the leaders met in Rome, Italian Prime Minister Mario Monti said the European Union should adopt a series of growth measures equal to about 1 percent of the region's gross domestic product at a summit next week.
On next week's agenda is a June 28-29 EU summit.
"The markets are looking for some sort of decision out of Europe that creates some sort of stability and optimism for that part of the world," said Jason Rogan, director of Treasuries trading at Guggenheim Partners in New York.
Brent oil futures rebounded after hitting an 18-month low on Thursday.
Brent crude gained $1.75 to settle at $90.98 a barrel, though it fell 6.8 percent for the week. NYMEX August crude settled at $79.76 a barrel, gaining $1.56. For the week, front-month U.S. crude fell 5.1 percent. A potential storm threatening to disrupt oil production in the Gulf of Mexico helped support oil prices.
Led by gains in bank shares, the U.S. benchmark S&P 500 recovered some of Thursday's drop of more than 2 percent, its second-worst fall of the year.
The Dow Jones industrial average gained 67.21 points, or 0.53 percent, at 12,640.78. The Standard & Poor's 500 Index was up 9.51 points, or 0.72 percent, at 1,335.02. The Nasdaq Composite Index was up 33.33 points, or 1.17 percent, at 2,892.42.
For the week, the Dow fell 0.9 percent, the S&P 500 declined 0.6 percent and the Nasdaq rose 0.7 percent.
U.S. bank shares rose despite ratings agency Moody's downgrading 15 of the world's biggest banks on Thursday. It lowered credit ratings by one to three notches to reflect the banks' risk of losses from volatile capital markets.
Morgan Stanley
World stocks dipped along with European shares after data showed German business sentiment fell for a second straight month in June to its lowest level in more than two years, according to the Ifo think tank. That data added to poor economic numbers this week from the United States, China and Europe.
World stocks, as measured by MSCI's global equity index, were down 0.3 percent and European shares ended down 0.7 percent.
In the foreign exchange market, the euro rose to as high as $1.2583 and was last at $ 1.2566, up 0.2 percent, on track for a weekly decline of 1.1 percent.
On Thursday, it fell about 1.3 percent, the worst daily performance since mid-December.
Bolstering the euro was a move by the ECB to allow financial institutions to pledge a wider range of assets, including collateral of a lower quality, in exchange for cash. The changes, which will be worth over 100 billion euros, marked the ECB's second such move in six months.
"As far as I can tell, the intended effect is to make it easier for people, businesses, banks, etc. to borrow money by utilizing collateral that wasn't available to use before today," said Neal Gilbert, market strategist at GFT in Grand Rapids, Michigan.
The gains in the euro helped gold prices edge higher. Spot gold was up 0.2 percent at $1,568.70 an ounce, but the metal posted a 3.5 percent loss for the week, its second-largest weekly decline of the year.
SPANISH BONDS, STOCKS UP
Spanish stocks rose 1.5 percent after independent audits on Thursday showed Spain's banks will need up to 62 billion euros in capital, well below the 100 billion euro bailout ceiling.
Spanish bonds rallied for a fourth consecutive day. Spanish 10-year yields fell 21 bps to 6.41 percent. After peaking around 7.3 percent earlier this week, yields have fallen as investors take the view that policymakers will put in place the building blocks of a lasting solution to the bloc's long-running debt crisis.
U.S. government debt prices fell as investors pared their bond holdings before next week's supply worth $99 billion. Benchmark 10-year notes fell 13/32 in price at 100-24/32 to yield 1.67 percent, about 5 basis points above Thursday's close.
U.S. primary dealers, which are the 21 Wall Street institutions that do business directly with the Federal Reserve, are holding near-record levels of Treasuries - more than $90 billion according to the latest official data - in part due to their purchases of short-dated debt the Fed has been selling in Operation Twist.
The Fed on Wednesday prolonged Twist into year-end, which allows another $267 billion in longer-dated bond purchases.
