US markets rebounded on Friday following a pullback in US Treasury yields as markets braced for a looming US government shutdown.

Data showed the personal consumption expenditures (PCE) price index rose 2.4 percent in the 12 months to November, up from 2.3 percent in October, the Commerce Department said in a statement.

But the reading came in lower than expected, prompting a pullback in US Treasury bond yields that had risen after Federal Reserve policy makers signaled earlier this week they expect fewer interest rate cuts in 2025.

Stocks fell sharply on Wednesday after the Fed decision.

But on Friday, the broad-based S&P 500 finished at 5,930.85, up 1.1 percent for the day but down about two percent for the week. The Dow Jones Industrial Average rose 1.2 percent to 42,840.26 and the Nasdaq Composite: was up1.0 percent at 19,572.60.

"We have seen a nice rebound from what was, in our view, an overreaction to the Fed's outlook on Wednesday," said Angelo Kourkafas of Edward Jones, pointing to Friday's inflation data as a supportive factor for equities.

Treasury yields pulled back following comments from Federal Reserve Bank of Chicago President Austan Goolsbee, who expressed confidence that the PCE data showed that inflation was returning to the Fed's target of two percent.

"Over the next 12 to 18 months, rates can still go down a fair amount," Goolsbee told CNBC.

Investors were also keeping watch on developments in Capitol Hill.

US lawmakers raced to stave off a government shutdown set to bite within hours after Donald Trump and Elon Musk sabotaged a bipartisan agreement that would have averted a shutdown.

If no deal is struck, the government will cease to be funded at midnight, and non-essential operations will start to grind to halt, with up to 875,000 workers furloughed and 1.4 million more required to work without pay.

European stocks finished the day lower although they cut their losses as Wall Street rebounded, with data showing tepid retail sales in the UK in the runup to Christmas dampening sentiment.

Among individual companies, Nike dipped 0.2 percent as it reported lower earnings while new CEO Elliott Hill outlined steps to get the slumping sports giant back on track. Analysts pointed to Nike's near-term outlook, which suggests a turnaround will not be quick.

Carnival jumped 6.4 percent following an upbeat 2025 forecast that included a 20 percent rise in profits to $2.3 billion. (AFP)