The markets were encouraged after President Donald Trump said he would meet with Chinese Vice Premier Liu, who is leading Beijing's negotiating team, at the White House on Friday. He also said China wants to make a deal.
"It's really good that Trump is meeting him, because that increases the odds that some type of positive news may happen tomorrow," said Brad Bernstein, senior portfolio manager at UBS Global Wealth Management.
Markets have been jittery all week as investors continue to assess the potential for a deal as tensions between Washington and Beijing escalated ahead of the talks. The U.S. blacklisted a group of Chinese technology companies over alleged human rights violations earlier this week. Meanwhile, China has clashed with the NBA and U.S. companies over free-speech issues.
Several big banks helped lift financial sector stocks, including Bank of America, which climbed 2.1%. The sector benefited from rising bond yields, which allow banks to charge higher interest rates on loans. The yield on the 10-year Treasury rose to 1.66% from 1.58% late Wednesday, a big move.
Technology stocks also notched solid gains. The sector is particularly sensitive to any news coming out of trade negotiations because many of the companies rely on China for sales growth and supply chains. Apple gained 1.3%. Chipmakers also rose. Intel added 1.1% and Nvidia picked up 1.2%.
Energy companies benefited from a 1.8% increase in crude oil prices. Safe-play sectors like utilities and real estate lagged the market. KEEPING SCORE: The S&P 500 was up 0.6% as of 3:21 pm. Eastern time. It had been up about 1% earlier in the day. The Dow Jones Industrial Average rose 129 points, or 0.5%, to 26,475. The Nasdaq gained 0.6%, while the Russell 2000 index of smaller companies added 0.4%.
Major indexes in Europe closed broadly higher. Asian markets finished mixed. ALL ABOUT TRADE: The trade war between the U.S. and China has dragged on for 15 months, inflicting economic damage on both countries and raising fears of a global recession.
The Trump administration has slapped tariffs on more than $360 billion worth of Chinese imports. Tariffs on $250 billion worth of goods are set to increase to 30% from 25% on Oct. 15, and new tariffs will kick in on another $160 billion on Dec. 15. That would extend import taxes to virtually everything China ships to the United States. China has hit back by targeting about $120 billion in U.S. goods, focusing on farm products.
While representatives of both countries have failed to make progress in resolving the trade conflict, there is more pressure this time for them to reach some type of agreement, even if it's merely to keep additional tariffs from kicking in, Bernstein said.
"The stakes are higher now than they've been in most, if not all, of the recent negotiations, because there are tariffs that are scheduled to increase in five days on China, which will directly impact you and me, and the economy and the world," he said.
COMEBACK? The week has been split between up and down days for the broader market as trade war volatility impacts stocks. Thursday's gains are helping the S&P 500 cut its losses for the week. The index is now down 0.6% for the week. On Wednesday it was on track for 1.1% weekly loss.
Despite recovering some lost ground, the Dow and Nasdaq were also still on track to finish the week in the red. FRESH SHEETS: Bed Bath & Beyond surged 20.5% after the struggling home goods chain named Target's former chief merchandising officer to be its new CEO and president. Mark Tritton, a 30-year-retail industry veteran, will assume the top role on Nov. 4 and succeed interim CEO Mary A. Winston.
GROUNDED: Delta Air Lines fell 1.4% after the company gave investors a weak profit forecast for the fourth quarter. The fourth quarter is among the busiest for U.S. airlines because of holiday travelers.
AP Business Writer Damian J. Troise contributed.