Comments from President Barack Obama and House Speaker John Boehner made investors optimistic that a deal will be brokered to avoid pushing the U.S. over the "fiscal cliff" at the end of the year.
The Dow Jones industrial average rose 106.98 points, or 0.8 percent, to close at 12,985.11.
The Standard & Poor's 500 index rose 10.99 points, or 0.8 percent, to close at 1,409.93.
The Nasdaq composite rose 23.99 points, or 0.8 percent, to 2,991.78.
For the week:
The Dow is down 24.57, or 0.2 percent.
The S&P 500 is up 0.78, or 0.1 percent.
The Nasdaq is up 24.93, or 0.8 percent.
For the year:
The Dow is up 767.55, or 6.3 percent.
The S&P 500 is up 152.33, or 12.1 percent.
The Nasdaq is up 386.63, or 14.8 percent.