Stocks jumped on Friday, driving the Nasdaq up 2 percent briefly and S&P 500 up 1 percent, after lender Countrywide Financial Corp. said it expects to return to profitability this quarter, easing some fears about financial sector losses.

Microsoft Corp., which raised its profit outlook late Thursday, gave the Nasdaq its biggest boost.

Countrywide's stock shot up 19 percent to $15.51, while shares of Merrill Lynch & Co. Inc. jumped 6.8 percent to $64.98 after CNBC television reported its chief executive, Stan O'Neal, has told friends he expects to be ousted.

Countrywide, the largest U.S. mortgage lender, said the housing slump led to a $1.2 billion third-quarter loss, but it expects to report a profit this quarter as it slashes jobs and stabilizes its operations.

The Dow Jones industrial average was up 75.35 points, or 0.55 percent, at 13,747.27. The Standard & Poor's 500 Index was up 15.12 points, or 1.00 percent, at 1,529.52. The Nasdaq Composite Index was up 48.86 points, or 1.78 percent, at 2,799.72.

On Wednesday, Merrill reported making huge write-downs for bad investments related to risky subprime mortgages.

Shares of Microsoft rose 11.3 percent to $35.61, a day after it lifted full-year forecasts and posted quarterly profit that beat analysts' expectations.

Merrill Lynch Microsoft U.S.