Stocks Vaulted Higher by Afternoon Rally

Paulsen said he welcomes a new approach to the economic crisis, but "the real proof in the pudding will come on how he handles himself ... in the next couple weeks."

Reports of Geithner's selection came amid more worries about the future viability of the financial sector. Beleaguered banking giant Citigroup (C Quote), whose stock has been crushed this week despite a large investment by Saudi billionaire shareholder Prince Alwaleed, rose early following a report by The Wall Street Journal that it's contemplating selling part or all of itself.

On the other hand, reports by the New York Times and CNBC indicated that senior executives, including CEO Vikram Pandit, are not interested in shedding segments of the business and believe the company has adequate capital and a solid business model. Left behind by the late rally, Citi shares finished down 20% at $3.77.

"Part of the problem with all the financials is that there's no way to really value them, quite simply because their book values belong on the fiction shelf," said Dirk Van Dijk, director of research at Zacks Investment Research. With so many hard-to-value assets on Citi's balance sheet, investors are having a difficult time pricing the stock, he said.

During the previous two outings, the major averages got hammered as economic data suggested a downturn would be worse than initially feared. The fate of troubled automakers General Motors (GM Quote), Ford (F Quote) and Chrysler remained uncertain after they failed Thursday to secure emergency funding from Congress.

The Big Three were continuing to adjust to headwinds. Media reports suggested that GM was preparing to make more production cuts at several of its factories after already announcing thousands of layoffs this year. GM climbed 6.3% to $3.06, and Ford rose 2.9% to $1.43.