The Dow Jones industrial average closed up 45.93 points, or 0.4 percent, at 12,588.31, after falling as much as 71 points at mid-morning. The Standard & Poor's 500 index rose 6.55 points, or 0.5 percent, to 1,359.88 and the Nasdaq rose 16.19 points, or 0.6 percent to 2,853.13.
Investor concern that Obama and Congress won't reach a deal on how to cut the deficit has caused a sell-off in stocks since Election Day. Stocks fell Wednesday after Obama insisted that higher taxes on wealthy Americans would have to be part of any deal and that he would not cave to Republicans who have pressed for tax cuts first passed by President George W. Bush to be extended for all income earners.
The Dow is down 5 percent since Nov. 6. If an agreement isn't made, automatic government spending cuts and tax increases are set to kick in at the beginning of next year. The measures total about $700 billion for 2013 and could send the country back into recession.
Mitch Stapley, chief investment officer at Fifth Third Asset Management, says that investors and traders are likely to be in for a rough ride until the politicians have brokered a deal.
"Volatility is going to be the hallmark as we go through this process ... It's going to be a very choppy period coming up," said Stapley, who is based in Grand Rapids, Mich.
The Dow still ended lower for the week, logging a fourth straight weekly decline. That slump has pared the index's gains for the year to 3 percent. The S&P 500 also ended the week lower, and has fallen three of the last four weeks.
Mixed earnings reports also weighed on stocks.
Dell fell 70 cents, 7.3 percent, to $8.86. The computer maker is struggling as consumers switch to tablets and smartphones away from PCs. Dell said that its revenue may fall as much as 13 percent in the fourth quarter. Sears fell $10.99, or 19 percent, to $47.49 after the retailer said sales at both its Kmart and Sears stores continued to tumble.
Superstorm Sandy depressed U.S. industrial output in October, while production of machinery and equipment declined sharply, reflecting a more cautious outlook among businesses, according to a Federal Reserve report.
The Fed says industrial output fell 0.4 percent last month, after a 0.2 percent gain in September. Excluding the storm's impact, production at the nation's factories, mines and utilities would have been up about 0.6 percent.
The yield on the benchmark 10-year Treasury note edged down to 1.58 percent from 1.59 percent late Thursday.
Among stocks making big moves:
Schiff Nutrition International, a nutritional supplement company, jumped $9.84, or 29 percent, to $43.76 after U.K.-based Reckitt Benckiser Group offered to pay $42 a share in cash to buy the company. German pharma giant Bayer had offered to buy Schiff in October for $34 a share. Schiff's stock is trading above the most recent offer, suggesting investors anticipate a bidding war may develop.
Ruckus Wireless Inc., a maker of wireless networking equipment, dropped $2.75 to $13.73 on its first day of trading. That's a decline of 18 percent.
Foot Locker rose $1.42, or 4.5 percent, to $33.27. Its net income rose 61 percent in the third quarter.