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NEW YORK World equity and oil prices rebounded on Friday after Republican leaders of the U.S. House of Representatives said they would seek to break a budget impasse next week, while the yen hit a 31-month low against the U.S. dollar ahead of potential asset purchases by the Bank of Japan.
On Wall Street, the Dow and the S&P 500 posted five-year closing highs after Republicans said the House will consider a bill to raise the U.S. debt ceiling enough to allow the country to pay its bills for another three months. The strategy would buy time for the Democratic-controlled Senate to pass a budget plan that shrinks the federal deficit.
The Nasdaq finished slightly lower, pulled down by a weak earnings outlook by Intel Corp, the world's leading chip maker.
"It could be a big positive for the markets if we come up with a plan of spending cuts that isn't too awfully hard on the economy," said Bryant Evans, investment adviser and portfolio manager at Cozad Asset Management, in Champaign, Illinois.
Earlier, stocks had faltered after a survey that showed U.S. consumer sentiment fell to its lowest level this month since December 2011.
The Thomson Reuters/University of Michigan's preliminary reading on the overall index on consumer sentiment came in at 71.3, down from 72.9 the month before.
Omer Esiner, a chief market analyst at Commonwealth Foreign Exchange in Washington, said the consumer confidence numbers would be closely scrutinized going forward, given the still-uncertain impact of higher payroll taxes on U.S. consumers.
"This is a big miss and could mark the beginning of a downward trend in sentiment and in spending," Esiner said.
Shares of Intel slumped 6.3 percent to $21.25 a day after the company forecast quarterly revenue below analysts' estimates and announced plans for increased capital spending amid slow demand for personal computers.
The Dow Jones industrial average closed up 53.68 points, or 0.39 percent, at 13,649.70. The Standard & Poor's 500 Index rose 5.04 points, or 0.34 percent, at 1,485.98. The Nasdaq Composite Index fell 1.30 points, or 0.04 percent, at 3,134.71.
For the week, the Dow gained 1.2 percent, the S&P 0.9 percent and the Nasdaq 0.3 percent.
Anxiety about the economy undercut optimism from upbeat U.S. housing data earlier this week, reviving some safe-haven bids for government debt.
The U.S. benchmark 10-year Treasury note ticked up 12/32 in price to yield 1.8416 percent.
Disappointing UK economic data helped pushed European shares down. The FTSEurofirst 300 index of top shares closed 0.16 percent lower at 1,163.64.
China reported that its economy grew at a slightly faster-than-expected 7.9 percent in the fourth quarter of 2012, a clear sign it has avoided a sharp economic slowdown, though the annual growth rate was the weakest in 13 years.
The China data followed strong U.S. labour and housing market reports on Thursday, providing fresh impetus to a broad rally in equities, precious metals and commodities since the start of the year.
MSCI's all-country world equity index hit its highest level since May 2011 at 351.90, up 0.25 percent.
Spot gold retreated $2.87 to $1,684.30 an ounce.
Oil supply disruption fears were reinforced by the Islamic militant attack and hostage-taking at a gas plant in Algeria, a member of the Organization of Petroleum Exporting Countries.
Lack of progress from another round of talks between the United Nations' nuclear agency and Iran about Tehran's nuclear program also pushed prices higher.
Brent crude rose 79 cents to settle at $111.89 barrel, while U.S. oil settled 7 cents higher at $95.56 a barrel.
The yen lost ground against the dollar on expectations aggressive policy moves by the Bank of Japan.
Sources familiar with the BoJ's thinking told Reuters the central bank, under relentless pressure from Japanese Prime Minister Shinzo Abe, will consider making an open-ended commitment to buy assets until 2 percent inflation is in sight.
"This is a big deal," said Jens Nordvig, global head of currency strategy at Nomura Securities in New York. "But as always from a trading perspective, it matters greatly what is already priced."
The euro last traded 0.22 percent lower against the yen at 119.89 yen, down from 120.70 earlier, its highest since May 2011.
The euro was also down against the dollar, falling 0.43 percent to $1.3317.
(Editing by Bernadette Baum, Gary Crosse, Nick Zieminski, Leslie Adler)