The Nasdaq gained 1.5 per cent and the Russell 2000 index of smaller company stocks rose 1.2 per cent.
Economists fear its impact could be bigger than the Severe Acute Respiratory Syndrome (SARS), which killed about 800 people at an estimated cost of $33 billion to the global economy, since China's share of the world economy is now far greater.
China's stock markets reopen tomorrow after being closed since January 23 for the Lunar New Year holiday.
The Dow and the S&P 500 reportedly experienced "their worst day since October", Monday, and airline stocks dropped.
In the USA stock market, Tesla surged 19.9% for its biggest gain since 2013.
Wall Street had taken comfort in a surprisingly solid reading of United States manufacturing and the Dow ended yesterday with a rise of 0.51 per cent, while the S&P 500 gained 0.73 per cent and the Nasdaq 1.34 per cent.
Volume on the New York Stock Exchange totaled 3.15 billion shares with 1,894 issues advancing, 135 setting new highs, and 1,042 declining, with 84 setting new lows. The Stoxx Europe 600 Index swung between gains and losses, as support measures from China's government helped stem losses in other markets.
Eight of the 11 primary S&P 500 sectors traded in green territory, with materials adding 2.13 percent, leading the gainers.
The energy sector slumped 1.3 per cent as crude prices dropped.
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As long as you can make the next step, you are in the right place and we just have to make sure that they do them as well.
On the corporate front, Applied Materials shares were up 2.98% in early trade after Deutsche Bank moved from "hold" to "buy" on the chip equipment maker's shares, while shares in Gilead Sciences were 4.68% higher on the back of reports that Chinese health officials were set to begin a clinical trial against the Wuhan virus using its Remdesivir anti-viral treatment.
"Investors are looking beyond the potential negative impacts of the coronavirus", said Michael Arone, chief investment strategist at State Street Global Advisors in Boston.
The Iowa caucuses are Monday, the first contest to choose a Democratic nominee to run against Donald Trump in November.
"Asset prices are a lot more over-valued coming into 2020, which means they are already very vulnerable to global sentiment", Shah said.
Goldman Sachs predicted that the virus may lower Chinese growth to 5.5% for the year, down from 6.1% in 2019.
As of 06:55 AM ET (1155 GMT), U.S. crude futures rose 0.4% to $51.76 but the worldwide benchmark Brent contract fell 0.2% to $56.51.
The yield on 10-year Treasuries gained three basis points to 1.54 per cent. It fell $1.19 to settle at $52.14 a barrel on Thursday.
Oil futures were down on worries about a slowdown in demand with Brent crude sliding 39 cents to $56.24 a barrel, the lowest since January 2019. The euro slipped to $1.1064 from $1.1095.
In currency trading, the dollar rose to 108.87 Japanese yen from 108.69 yen.