Stocks on both sides of the Atlantic staged a broad rally, riding a wave of optimism that a deal to tackle Greece’s debt woes could come as soon as this weekend.  Investors cheered news that Greek officials and the country’s creditors were moving closer to an agreement that could keep the country in the eurozone. The latest development offered fund managers some respite from the anxiety that has roiled financial markets in recent weeks, although many investors warned that the outlook could quickly darken, depending on what happens in the coming days.  Friday’s gains allowed the Dow Jones Industrial Average to eke out a 0.2% gain for the week, which followed two weeks of losses. The blue-chip index rose 211.79 points, or 1.2%, to 17760.41 on Friday.  European stocks, which have been more volatile amid the twists and turns of the Greek saga, also clawed back losses that followed last Sunday’s referendum, in which Greek voters rejected a set of the creditors’ austerity demands. The Stoxx Europe 600 rose 2% Friday and 1.4% for the week.  Bond markets took a beating. Fund managers unnerved by the events in Greece and volatility in China in recent weeks had piled into haven government debt as a refuge. On Friday, they dumped bonds in favor of riskier assets such as stocks, with the yield on the 10-year Treasury note rising to 2.415%, near its highs for the year. Bond yields rise when prices fall.  “Markets are celebrating the likelihood of an agreement this weekend,” said Steven Englander, a senior currency strategist at Citibank.  Signs that the selloff in China’s stock markets was abating also helped shares elsewhere.  The recent swings in U.S. stocks illustrate the crosscurrents confronting investors. Major indexes remain near records against a backdrop of elevated valuations by historical measures, shaky global growth and the prospect of higher interest rates. And the uncertainty in Europe and China has further dimmed the outlook for the global economy, raising doubts that stocks can make significant gains this year.  The CBOE Volatility Index, which measures expectations for future swings in the S&P 500, on Thursday rose to its highest level since Jan. 30. The VIX, as it is called, is based on S&P 500 options and tends to rise as stocks fall. On Friday, the VIX fell 16% to 16.83.  In a midday speech in Cleveland, Federal Reserve Chairwoman Janet Yellen reiterated that the central bank still planned to start raising short-term U.S. interest rates later this year, for the first time in nearly a decade. That damped speculation that the turmoil in Europe and China could push a rate increase to 2016.  Some investors were skeptical about Friday’s gains. Eurozone leaders are convening this weekend to discuss new rescue loans and debt relief. An agreement is required for Greek banks to reopen Monday and for the country to stay solvent.  “It certainly could change over the weekend,” said Will Braman, chief investment officer at Ballentine Partners, which manages $5 billion.  Hurdles remain. Any Greek plan may face tough domestic opposition. And the shutdown of Greece’s financial system last week and uncertainty over its future in the eurozone have delivered blows to the economy that would have to be offset by new cuts or extra revenue.  “I would rather wait before celebrating,” said Luca Paolini, chief strategist at Pictet Asset Management, which has €149 billion ($164 billion) in assets under management. “But it now looks more likely than not Greece will stay in the euro.”  If Athens can secure a new bailout, investors are likely to drive European stocks higher as they refocus on improving corporate earnings in the region, Mr. Paolini said.  Greek stock markets were closed all week, but an exchange-traded fund that trades on the NYSE Arca and tracks Greek stocks, the Global X FTSE Greece 20 ETF, surged 9.2% Friday.  “Provided that Greece’s creditors are convinced that [Prime Minister Alexis] Tsipras is serious about reforms, then a deal will be done by Sunday,” said Demetrios Efstathiou, a strategist at ICBC Standard Bank.  Bonds rallied in Spain, Italy and Portugal. Those countries have been rattled by the spillover from Greece’s debt crisis, but 10-year yields in all three fell to their lowest levels in two weeks during the day.  Greek two-year bond yields tumbled from above 50% to just under 30%, according to Tradeweb, although trading in Greek government bonds remains limited.  The euro climbed 1.1% against the dollar, to $1.1156.  Investors are also keeping close watch on earnings season in the U.S. Johnson & Johnson, J.P. Morgan Chase & Co. and Wells Fargo & Co. are among companies scheduled to release their quarterly results this coming week. Investors will be looking to see whether earnings hold up to expectations and what the companies are predicting for the U.S. economy in the coming quarters. Quarterly earnings for S&P 500 companies are predicted to fall 4.5%, according to FactSet. Revenue is also forecast to slip 4.5% in the quarter.  “The U.S. economy is gradually getting better, but you need to see revenue growth,” said Margaret Vitrano, portfolio manager of the $1.8 billion ClearBridge Large Cap Growth fund.  Write to Tommy Stubbington at tommy.stubbington@wsj.com
U.S. stocks rose sharply Friday after fresh Greek economic proposals appeared to put Athens closer than ever to striking a bailout deal with its creditors.