By Rodrigo Campos

The Nasdaq was the best performing index, led by large technology companies including Google Inc , up 7.7 percent to $330.07, whose earnings beat estimates.

JPMorgan Chase and Citigroup led financials higher. Some analysts cited market talk of further government cash injections to banks while others said investors were tempted by beaten-down stocks following this week's sell-off.

"There is some chatter circulating out there about the possibility of a new effort from the new administration to help supplement capital bases in the banking sector," said Craig Peckham, equity trading strategist at Jefferies & Co in New York.

The Dow struggled to remain positive as General Electric warned of an "extremely difficult" 2009, and investors worried about a possible dividend cut despite reassuring comments by the company's chief executive.

The Dow Jones industrial average <.DJI> rose 2.55 points, or 0.03 percent, at 8,125.35. The Standard & Poor's 500 Index <.SPX> gained 9.34 points, or 1.13 percent, at 836.84. The Nasdaq Composite Index <.IXIC> added 27.39 points, or 1.87 percent, at 1,492.88.

JPMorgan Chase , up 2.6 percent to $23.68, was the largest points gainer on the Dow while Citigroup jumped 10 percent to $3.43, as the sector rose on hopes for new government plans to increase banks' capital.

Chevron was among the largest gainers in the Dow as crude futures erased earlier losses and were trading up about 5.4 percent, or $2.34 per barrel at $46.01.

Gold also boosted commodities' stocks as it jumped over 4 percent to its highest in more than three months driven by volatility on the foreign exchange markets.

GE shares fell 8.8 percent to $12.29 and United Technologies Corp lost 2.4 percent to $47.80, weighing down the industrials' sector.

(Additional reporting by Deepa Seetharaman)