And in a reminder of the persistent debt problems in the euro zone, Fitch cut Greece's credit rating to junk on Friday. The move, which followed similar downgrades by Standard & Poor's and Moody's in December, highlighted doubts about the country's ability to get itself out of a severe debt crisis that has shaken the euro zone.
A 47 percent jump in fourth-quarter profit at J.P. Morgan Chase & Co. soothed investors, even as much of the gain came from dipping into money that the No. 2 US bank had set aside to cover bad loans.
"We're optimistic that the earnings season starting is actually going to be pretty positive," said Thomas Nyheim, vice president and portfolio manager at Christiana Bank & Trust Co. in Greenville, Delaware.
But US gold futures fell more than 2 percent to a one-week low on Friday — tumbling $27.50 to $1,359.50 an ounce — as news that China's central bank raised lenders' reserve requirements prompted a sharp sell-off. Spot gold slid to $1,359.10, down from $1,372,75 late on Thursday.
US Treasury debt prices were flat to slightly higher, with the 10-year note's yield steady at 3.30 percent, representing an oasis of calm compared with the dramatic slide in US municipal bond prices.
In the $2.8 trillion US municipal bond market, the sell-off continued for a fifth day, driving tax-free 30-year bond yields up to 5.01 percent and reflecting investors' nervousness about the shaky condition of state and local finances throughout the United States.
Christopher Ryon, a portfolio manager with Thornburg Investment Management, which oversees $75 billion in assets, said there are anecdotal reports of crossover buyers stepping into the market. "That sometimes indicates a market bottom," he said.
A soggy start to US trading and in Europe came after China's 50-basis-point increase in required reserves forced its banks to lock up more of their cash with the central bank as Beijing hopes to drain the economy of excess money and tame rising prices.
The tightening briefly hit copper prices, and speculation about such a move earlier sent Chinese stocks down 1.29 percent. Coming off a 28-month high on Thursday, the MSCI All-Country World Index edged up 0.04 percent,
At midday in New York, the three major US stock indexes rose modestly, reversing earlier declines. The Dow Jones Industrial Average rose 29.63 points, or 0.25 percent, to 11,761.53 and the Standard & Poor's 500 Index gained 4.92 points, or 0.38 percent, to 1,288.68.
The tech-heavy Nasdaq Composite Index was up 8,94 points, or 0.33 percent, at 2,744.23, drawing some support a day after Intel posted better-than-expected quarterly earnings. The semiconductor index shot up 2 percent.
The S&P MidCap 400 Index hit an intraday record high of 928.92 in midday trading, reflecting expectations for solid US growth.
The pan-European FTSEurofirst 300 dropped 0.1 percent, recovering some losses as commodities, such as copper and oil bounced off earlier lows. Oil fell 27 cents, or 0.30 percent, to $91.15 per barrel.
Japan's Nikkei average fell 0.86 percent after a surprisingly weak settlement of options for January and a stronger yen against the dollar trigger profit-taking.
The euro drew earlier support on Friday after a string of successful debt auctions by struggling euro-zone nations calmed fears of the region's credit crisis. A Fitch Ratings downgrade of Greece's credit, noting a heavy debt burden is making the nation vulnerable to adverse shocks, offset euro strength.
The Australian dollar fell after China raised banks' reserve requirements and fostered speculation of cooler Chinese growth. Australia's strong trade links with China make it sensitive to Chinese growth expectations.
The euro — on track for its biggest weekly gain since May 2009 — also rose this week after European Central Bank chief Jean-Claude Trichet's warning on inflation raised expectations of rising interest rates.
By midday, the dollar had erased losses against both the euro and the yen as Fitch downgraded Greece, and as some traders squared positions ahead of a three-day weekend in the United States. The euro dipped 0.01 percent to $1.3353. Against the Japanese yen, the dollar gained 0.13 percent to 82.91 yen.
US Treasury debt prices had rise after the retail sales data, and also as higher gasoline prices pushed overall December consumer prices up at their fastest pace in a year and a half, which also weighed on consumer sentiment in early January, according to a Reuters/University of Michigan survey.
But by midday, Treasury debt prices were almost flat.
Driving prices at the pump, US oil prices have soared more than 62 percent since early 2009. The S&P energy index has been rising for eight months and is close to its highest since October 2008.
Within the United States, however, shaky government finances are hitting confidence of investors who have been yanking money from the tax-exempt market.
Earlier, Treasuries also had gained, reflecting perceptions that the national economic reports are unlikely to budge the Federal Reserve from its $600 billion US bond buying program aimed at accelerating growth and lowering the lofty jobless rate, analysts said.
The Fed's so-called quantitative easing program, or "QE 2,' is a luxury liner for the financial companies," Springer Financial's Springer said. "What the Fed is doing is giving them a warchest."
