US stocks rebounded on Friday as investors neared the end of a holiday-shortened week that also rang in a new year, which brought with it expectations of additional Federal Reserve rate cuts and looser regulatory policies from the incoming administration.

A broad rally sent all three major US stock indexes to a higher close, with megacap growth companies, such as Tesla and Nvidia, providing much of the muscle to the upside and putting the Nasdaq out front.

Even so, all three indexes posted modest declines for the week, with the S&P 500 logging its third weekly loss in four.

A multi-session selloff put a dour finish on what was a banner year for the equities market, as continued momentum of artificial intelligence technology and the U.S. Federal Reserve's first policy rate cuts in three-and-a-half years helped fuel double-digit gains in 2024.

"After the late-in-the-year weakness, and a very oversold market, we finally saw some buyers step in," said Ryan Detrick, chief market strategist at Carson Group in Omaha. "Obviously the past week-and-a-half has been disappointing for the bulls, but volume has been light and there hasn't been a lot of news."

"Let's just remember, starting next week, on Monday, that's when a lot of the big money managers come back to the desk," Detrick added. "We'll see if this bullish trend can continue."

On the economic front, the Institute for Supply Management's (ISM) purchasing managers' index (PMI) surprised to the upside by gaining 0.9 point to 49.3, its highest reading since March, nudging ever closer to expansion territory.

A run of fairly robust economic data has called into question the need for additional interest rate cuts from the Fed in the near term due to the possibility of re-igniting inflationary pressures.

Richmond Fed President Thomas Barkin said the US 2025 economic outlook was positive, despite uncertainty about the impact of trade and other policies that may be pursued by the incoming Trump administration.

The newly elected Congress convened for its first session on Friday, and US President-elect Donald Trump is expected to take the oath of office on January 20.

While Trump's proposals - which include cutting corporate taxes, easing regulations and imposing tariffs - could boost corporate profits and energize the economy, they also risk placing upward pressure on inflation.

The Dow Jones Industrial Average rose 339.86 points, or 0.80 percent, to 42,732.13, the S&P 500 gained 73.92 points, or 1.26 percent, to 5,942.47 and the Nasdaq Composite gained 340.89 points, or 1.77 percent to 19,621.68.

President Biden blocked the proposed sale of US Steel to Japan's Nippon Steel for US$14.9 billion, citing national security concerns. US Steel's shares dropped 6.5 percent.

Microsoft shares gained 1.1 percent after the company said it would invest US$80 billion on AI-enabled data centers in fiscal 2025.

Alcohol producers lost some ground after US Surgeon General Vivek Murthy said that alcoholic drinks should carry a label warning of cancer risks. Molson Coors and Brown Forman slid by 3.4 percent and 2.5 percent, respectively. (Reuters)