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Stocks halt two-day selloff: Dow back in the black

Stocks finished mixed in volatile trading Friday, with major averages putting an end to two days of heavy losses triggered by Fed Chairman Ben Bernanke's comments that the central bank may scale back its asset purchases later this year.

"The Fed and policies in other countries should continue to drive market volatility in the near term," strategists at Wells Fargo Advisors said. "Economic conditions are improving and the outlook for the U.S. economy remains favorable…We continue to view pullbacks in equities as buying opportunities to accumulate stocks in cyclical sectors as valuations remain below the longer-term average."

(Read More: Bulls and Bears Face Off on Market's Next Move)

The Dow Jones Industrial Average, which had slumped 350 points, or over 2 percent, on Thursday, finished 41 points higher, led by P&G and Coca-Cola.

The S&P 500 also finished in positive territory, but the Nasdaq ended narrowly in the red. The CBOE Volatility Index (VIX), widely considered the best gauge of fear in the market, declined below 19.

Most key S&P sectors closed higher, led by consumer staples and utilities, the hardest-hit sectors in the last two days.

Major averages have been on a roller-coaster ride all week, amid anxiety over the Fed meeting. Stocks took a sharp nosedive around the world Thursday, with the Dow and the S&P 500 posting their worst losses of 2013.

Asian shares stabilized Friday, led by a stellar rebound in Japan's benchmark Nikkeiindex, which crossed the 13,000 level to rally as much as 2 percent, notching up gains of over 4 percent on the week. Meanwhile, Europe shares closed at their lowest level since January.

"There appears to be relative calm following a calamitous period since the Fed threatened to take away the steroids. In the grand scheme of things, stocks still look relatively cheap when compared to cash and government bonds, so investors will be on a bargain hunt following yesterday's battering," said Mike McCudden, head of derivatives at stockbroker Interactive Investor.

(Read More: Stock Drop an Overreaction: Morgan Stanley CEO)

The benchmark 10-year Treasury notes fell, pushing their yield to a near two-year high of 2.516 percent. The Treasury is scheduled to auction $99 billion in new coupon-bearing notes, including $35 billion in two-year notes on Tuesday, $35 billion in five-year notes on Wednesday and $29 billion in seven-year notes on Thursday.

"All the concern in the markets is because the Fed sees the economy stronger in the future," said widely-followed hedge fund manager David Tepper, founder of Appaloosa Management in a statement to CNBC. "In fact, their forecast shows that they will wait until a lower unemployment rate(closer to 6 percent than 6.5 than) to raise interest rates. So they are a bit easier on that front...I obviously thought they should start to taper. [But] the bottom line when the dust settles [is that the] only one place to be [is] stocks."

St. Louis Federal Reserve President James Bullard said the decision by the central bank to lay out its plans to taper its bond-buying program was badly timed and that the Fed should have waited for "more tangible signs" of economic improvement and a halt in the downward direction for inflation.

There were no major economic reports released. But Friday marked quadruple witching, when index futures, options on index futures, single-stock futures and stock options expire.