A fairly light U.S. calendar features the ISM's February index of regional business activity for February on the data front and, on earnings, the fourth quarter report from retailer Big Lots (BIG.N).

The Dow Jones industrial average .DJI closed up 28.23 points, or 0.22 percent, at 12,980.30. The Standard & Poor's 500 Index <.SPX > added 8.41 points, or 0.62 percent, to 1,374.09. The Nasdaq Composite Index .IXIC rose 22.08 points, or 0.74 percent, to 2,988.97.

U.S. fund investors turned positive on equities with domestic funds garnering most of the fresh cash, while municipal bond funds held onto positive territory although their inflows dwindled to a three-month low, data from Thomson Reuters' Lipper showed.

Global stock markets present a positive backdrop, with Japan's Nikkei .N225 hitting a fresh seven-month closing high on Friday, while the FTSE Eurofirst 300 .FTEU3 was up 0.2 percent at 1,089.15 points, bolstered by expectations that ultra-cheap cash from the European Central Bank will keep the financial sector out of trouble.

Brent crude futures slipped below $125 on Friday after surging 5 percent to an 11-month high a day earlier, as fears of a supply disruption from Saudi Arabia eased.

Recent signs of improvement in the U.S. economy are encouraging but the rebound has been anemic and the Federal Reserve must "keep applying monetary policy stimulus vigorously," San Francisco Federal Reserve President John Williams said late on Thursday.

PSA Peugeot Citroen (PEUP.PA) could consider joint production of some vehicles with its new strategic partner General Motors Co. (GM.N) from 2016, the French auto maker's Chief Executive Philippe Varin said on Friday.

(Reporting By Toni Vorobyova; Editing by Mark Potter)

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