Stocks rose on Friday on a report the U.S. Treasury will soon unveil a plan to help stem the subprime mortgage crisis and on comments by Fed chief Ben Bernanke that added to expectations of an interest-rate cut.

Beaten-down mortgage-related shares such as Countrywide and Freddie Mac were the biggest gainers after sources familiar with the situation said the Treasury is close to announcing a plan it is brokering with mortgage industry leaders to hold interest payments steady for many subprime borrowers facing foreclosure.

It's the Treasury's efforts to try to help get rid of some of the subprime problems that's really the driving force, said Charles Lieberman, chief investment officer of Advisors Capital Management in Paramus, New Jersey.

Investors were extremely fearful and values were artificially low. Some of the extreme fear is now out of the market and maybe a more realistic valuation can be established, he added.

The Dow Jones industrial average was up 130.14 points, or 0.98 percent, at 13,441.87. The Standard & Poor's 500 Index was up 15.61 points, or 1.06 percent, at 1,485.33. The Nasdaq Composite Index was up 18.01 points, or 0.68 percent, at 2,686.14.

Countrywide shares jumped 15 percent to $10.69 and Freddie Mac stock gained 12 percent to $33.05.

Federal Reserve Chairman Bernanke said late on Thursday a resurgence in financial strains in recent weeks had dimmed the outlook for the U.S. economy, which raised speculation that policymakers are willing to lower benchmark rates again. Stocks had rallied earlier this week after Fed Vice Chairman Donald Kohn made similar remarks.

Bernanke stressed that the Fed, the U.S. central bank, still has lingering concerns about inflation.

Rate-sensitive investment banks were some of the biggest-weighted gainers on the S&P and Dow. JPMorgan Chase jumped 4.2 percent to $45.50 and Bank of America added 3.9 percent to $46.35.

Before the opening bell, a U.S. Commerce Department report showed the Fed's favored inflation gauge, the Personal Consumption Expenditure index, rose at a modest pace, as expected.

Shares of Motorola shares rose 1.2 percent to $15.83 after the mobile phone maker said its chief executive will step down at the end of the year.

Morgan Stanley also announced a top executive departure. The investment bank said Co-President Zoe Cruz is retiring. Cruz is the latest top banker to vacate her post after overseeing a multi-billion dollar loss on subprime mortgage-related losses.

Morgan Stanley shares were up 3.7 percent at $53.25. Shares of Dell dropped 13.5 percent to $24.35 on the Nasdaq after the world's No. 2 personal computer maker posted lower-than-expected quarterly profit margins.

(Editing by James Dalgleish)

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