By Anna Hirtenstein

U.S. stocks edged higher for a second consecutive session Friday, putting major indexes on track to end a turbulent week roughly where they began.

The S&P 500 rose 0.6%, building on its 1.1% gain a day earlier to push the broad benchmark up 0.2% for the week. The Dow Jones Industrial Average added 265 points, leaving it mostly flat over the past five trading days. The Nasdaq Composite advanced 0.3% and is poised for a 1.1% weekly gain.

The recovery helped erase losses from a painful three-day selloff at the beginning of the week that was fueled by mounting concern that inflation will rise and remain elevated as the economy rebounds. Stocks have been enjoying a reversal though since Thursday's jobless claims numbers, seen as a proxy for layoffs, fell to a new pandemic low, enticing investors to dip back into risky assets, including growth stocks and cryptocurrencies.

"There was some relief that the labor market recovery is under way in the U.S. and we're seeing some nervousness about inflation ebbing away," said Kiran Ganesh, a multiasset strategist at UBS Global Wealth Management.

Money managers are betting that some sectors -- such as banking and energy -- could benefit in particular as the economy rebounds to pre-pandemic levels.

"If we can get a combination of confidence that inflation is under control, and signs of economic momentum coming through, I think there is still good opportunities to be had, in the reopening type of sectors in particular," Mr. Ganesh said. Stocks that performed poorly during the pandemic could become the new drivers that lead major indexes higher, he added.

Data showing manufacturing activity continues to ramp up added to Friday's upbeat session. The U.S. Composite Output Index climbed to its highest reading ever, surpassing April's previous record readout as business activity expanded rapidly.

All 11 S&P 500 sectors were up in early trading Friday, with industrial, financial and healthcare stocks among the biggest gainers.

Hard-hit growth stocks also notched modest advances. Telsa added 1.2%, bringing the electric car maker's stock back into positive territory for the week. Netflix and Square were also slightly higher.

Oat-milk maker Oatly rose more than 8%. The shares jumped 19% in their trading debut on Thursday.

In bond markets, the yield on the benchmark 10-year Treasury note ticked down to 1.617%, from 1.631% Thursday.

Bitcoin prices also stabilized after tumbling as low as $30,444.93 on Wednesday. The cryptocurrency recently traded around $41,000.

"The context of this week is that markets are tired," said Paul O'Connor, head of a multiasset team at Janus Henderson. "Stocks keep losing momentum, speculative areas of the market are losing momentum. There is fatigue here."

Surveys of purchasing managers across Europe showed a stronger-than-expected rebound in services activity this month. The pan-continental Stoxx Europe 600 edged up 0.7%.

In Asia, major benchmarks were mixed. The Shanghai Composite Index declined 0.6%, while Japan's Nikkei 225 advanced 0.8%.

-- Michael Wursthorn contributed to this article.

Write to Anna Hirtenstein at anna.hirtenstein@wsj.com

(END) Dow Jones Newswires

05-21-21 1034ET