US STOCKS-Wall St ends up on hopes of debt solution in Washington

* JPMorgan posts first loss since 2004, a blow to Dimon

* Markets encouraged by bipartisan talks in Washington

* CBOE Volatility index falls near two-week low

* Indexes up: Dow 0.7 pct; S&P 0.6 pct; Nasdaq 0.8 pct

By Angela Moon

NEW YORK, Oct (KOSDAQ: 039200.KQ - news) 11 (Reuters) - U.S. stocks rose on Friday, extending gains from a major rally in the previous session, as investors were hopeful for a solution to end the partial U.S. government shutdown and raise the U.S. borrowing limit to avoid a possible default.

The S&P 500, which jumped more than 2 percent on Thursday, ended above 1,700 for the first time since late September.

Buyers on Friday were motivated by the chance an agreement could come over the weekend. The Senate is expected to vote over the weekend on extending the federal debt limit through January 2015.

President Barack Obama and congressional Republican leaders worked to end a fiscal impasse that would allow a reopening of the federal government and an increase in the U.S. debt limit.

"People don't want to be short going into a weekend, especially if a deal does get done," said Dennis Dick, proprietary trader at Bright Trading LLC in Las Vegas.

The partial shutdown is now in its eleventh day and less than a week remains before an Oct. 17 deadline to extend the government's borrowing authority and avoid a debt default.

All S&P sectors were up except consumer staples, which fell slightly. Energy stocks led the S&P 500, rising more than 1 percent after the Environmental Protection Agency proposed lowering the required amount of ethanol to be blended into U.S. gasoline after Thursday's market close.

The CBOE Volatility index VIX, Wall Street's so-called fear gauge, closed down 4.6 percent at 15.72, the lowest in nearly two weeks.

"This rally will provide the opportunity to modify positioning, as we expect fundamentals to matter more as the credit cycle turns," said Peter Cecchini, managing director at Cantor Fitzgerald in New York, writing in a note to clients.

The Dow Jones industrial average was up 111.04 points, or 0.73 percent, at 15,237.11. The Standard & Poor's 500 Index was up 10.63 points, or 0.63 percent, at 1,703.19. The Nasdaq Composite Index was up 31.13 points, or 0.83 percent, at 3,791.87.

For the week, the Dow rose 1.1 percent, the S&P 500 rose 0.7 percent while the Nasdaq fell 0.4 percent as some of the strongest gainers in the tech sector sold off during week as investors were taking profits.

JP Morgan Chase (Other OTC: JFTTL - news) & Co, the biggest U.S. bank by assets, reported a rare quarterly loss after incurring $9.2 billion in legal expenses. Its shares seesawed throughout the trading session, and ended flat at $52.51.

Wells Fargo (Other OTC: WFCNO - news) & Co, the biggest U.S. mortgage lender, reported a 13 percent rise in third-quarter profit, but its mortgage banking income fell sharply as the refinancing boom began to fade. Wells Fargo shares also ended flat at $41.43.

Apparel chain Gap was down 6.7 percent to $36.83 a day after reporting net sales were flat compared with last year.

The Thomson Reuters/University of Michigan index of consumer sentiment fell in October to its weakest in nine months and was below expectations.

Trading volume totaled about 4.8 billion shares on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the average daily closing volume of about 6 billion this year.

Both on the NYSE and the Nasdaq, advancing stocks outnumbered declining ones by a ratio of about 3 to 1.