New York: The euro and US stocks rose on Friday as chances of currency intervention and clarity on Wall Street reforms made investors hedge bets ahead of the weekend after heavy selling on Europe's festering debt crisis.

US banking shares rallied a day after the United States Senate approved a sweeping overhaul of regulations covering fin-ancial firms. The Senate bill reduced uncertainty over how hard the legislation could hit bank profits. Investors saw chances it would not be as tough on Wall Street as feared.

Skittish trading on a day when many US equity options and some options on stock indexes expire contributed to market volatility.

The euro headed for its first weekly gain versus the US dollar in six weeks as investors who had bet on the currency's decline bought it back on fears of central bank intervention.

Neutral positioning

While European shares closed lower they did bounce up from eight month lows. Latin American equities rallied on the back of US market gains with the theme of neutral positioning running through global markets.

"I think what is happening now is a squaring of positions going into the weekend. I don't think it is anybody buying, but more of people just squaring off (positions)," Vitali Meschoulam, emerging markets macro strategist at Morgan Stanley in New York, said.

"You have headline risk both ways, making it hard to take a very strong directional view in the market because there is still a fair amount of uncertainty," he added.

Losing ground

US Treasuries fell as stocks rose while gold lost ground for a fifth consecutive day after reaching a record high one week ago. Crude oil pared earlier losses, a day after touching a seven month low.

Euro zone sovereign debt problems have not been solved but there was progress in the rescue process. German lawmakers on Friday backed the $1 trillion plan for the euro zone.

"There have also been some market rumours that central banks would intervene, which in my mind is an unlikely event. However, the very suggestion is enough to make investors pare positions," Andrew Wilkinson, senior analyst at Interactive Brokers Group in Greenwich, Connecticut, said.

At the close of US stock market trading, the Dow Jones industrial average rose 125.38 points, or 1.25 per cent, to 10,193.39. The Standard & Poor's 500 Index gained 16.10 points, or 1.50 per cent, to 1,087.69. The Nasdaq Composite Index climbed 25.03 points, or 1.14 per cent, to 2,229.04.

For the week the Dow industrials fell four per cent, the S&P 500 lost 4.2 per cent and the Nasdaq dropped five per cent.

The S&P Financial index rose 3.62 per cent from Thursday's three-month low, when the index fell nearly five per cent.

Shares of Goldman Sachs Group gained 3.34 per cent to $140.62 after analysts cited rumours of a possible settlement with US regulators of civil fraud charges.

The FTSEurofirst 300 index of top European shares closed down 0.5 per cent at 970.00 points. A late rally in banks pulled the pan-European index off earlier lows, but declines in oil and gas producers helped keep the market in negative territory.

BP fell 4.2 per cent after US politicians accused the company of covering up the true extent of the oil spill in the Gulf of Mexico.