The Nasdaq composite index rose 64.49, or about 2 percent, to 3,483.09, and the Standard & Poor's 500 index climbed 8.16 to 1,396.92. The Dow Jones industrial average rose 83.61 to 10,226.59.
On Thursday, the Nasdaq composite index surged 247.04, or nearly 8 percent, to 3,418.60--the third-largest percentage gain in its history.
About two stocks advanced for every one that declined on the Nasdaq, which generated a respectable trading volume of 2.16 billion shares, while 1.17 billion shares were traded on the New York Stock Exchange.
For the week, the Nasdaq gained 5 percent, while the S&P climbed nearly 2 percent. The Dow was virtually unchanged with a rise of just 35 points. Despite this week's gain, the Nasdaq is down nearly 18 percent since the beginning of September.
Some observers considered the two-day rally a positive indicator for further gains.
"The market will slowly work its way up until the end of the year," said Ed Keon, a market strategist at Prudential Securities.
Yet Keon does not think the markets will return to the bullish days of a year ago. "I don't think we can conclude that it's safe to leap back into the pool."
Yet an earnings slowdown does not mean the economy will crash. "The risk of recession is small," said Bruce Stienberg, chief economist at Merrill Lynch, in a report released Friday.
"The U.S. economy is healthy, though slowing...we don?t see any reason to alter our forecast that (the economy) will grow nearly 4 percent next year."
Friday's rally was aided by news of a merger between two Dow components. United Technologies was reported close to buying Honeywell International for $40 billion in stock. The companies issued a statement Thursday that they are discussing a "possible business combination."
However, late in the day Dow Jones reported that General Electric would top United Technologies' bid.
United Technologies fell $3 to $65, while Honeywell climbed $10.13, or 28 percent, to $46.
Meanwhile, Dow component Microsoft climbed $3.31 to $65.19. Other large-capitalization tech stocks helped the Nasdaq hold its gains as Intel climbed $1.13 to $43.06, JDS Uniphase advanced $12.44, or nearly 14 percent, to $102.38, and Sun Microsystems rose $1 to $118.69.
Shares of eBay closed up 88 cents to $58.06 after the online-auction giant said third-quarter revenue rose 94 percent and the company beat analyst expectations.
On Thursday, eBay posted net income of $19.1 million, or 7 cents a share excluding noncash and stock-related charges. Analysts expected eBay to earn 4 cents per share in the third quarter of this year excluding the charges, according to a survey by First Call/Thomson Financial.
Other e-tailers made gains today. Amazon.com rose $3.06, or 11 percent, to $30.81; Priceline.com climbed 28 cents to $5.41; and FreeMarkets gained $5.31, or about 13 percent, to $47.50.
The CNET tech index rose 36.41 to close at 2,737.97. Winners topped losers, with 69 of the 97 stocks in the index rising, 26 falling and two remaining unchanged.
Almost all of the 18 sectors tracked by CNET Investor traded higher. Internet e-tailers and semiconductor makers posted the sharpest gains, rising about 5 percent each. Network equipment makers were one of the day's losers, slipping nearly 1 percent.
The Philadelphia semiconductor index inched down 5.87 to 752.87, led by chip designer Rambus, which lost $6.63 to close at $63.75.
Earnings news also shined favorably on shares of Emulex, which climbed $12.25 to $160.25. The maker of computer cards that speed data transmission said it had net income of 33 cents a share in its first quarter ended Oct. 1. It was expected to earn 26 cents, the average estimate of nine analysts polled by First Call.
Epiphany shares rose $25.13, or nearly 39 percent, to $89.88. The software maker said third-quarter sales increased eightfold, beating forecasts and helping it to a narrower-than-expected loss.
Net-consulting company Scient reported second-quarter earnings a penny higher than Wall Street estimates. Scient, which helps companies develop their Web sites and devise Internet strategies, posted net income of $5.7 million, or 7 cents a share, compared with a loss of $1.6 million, or 2 cents per share, in the same period a year ago. The shares moved up $4.44, or 24 percent, to $22.63.
But the reaction to earnings news was not all positive. Ericsson, a maker of cellular networks, cut forecasts for profitability and sales this year because of losses from making mobile phones. Ericsson fell $2.31, or almost 17 percent, to $11.69.
Exodus Communications fell $4.50, about 12 percent, to $33.56. The web hosting company said its third-quarter loss more than doubled from a year ago as sales to new and existing customers tripled.
Mercator Software, a maker of products for linking computer systems, fell $7.66, or nearly 63 percent, to $4.59, making it the largest percentage loser on the Nasdaq. The company said it had a third-quarter loss; analysts had expected a profit.