Stocks turned higher as investors absorbed a spate of economic reports giving conflicting accounts of the U.S. economy's health.
The Dow Jones Industrial Average rose more than 25 points. Alcoa, , IBM and Chevron rose, while Hewlett-Packard and Merck fell.
The S&P 500 and the Nasdaq rose. The CBOE Volatility Index, widely considered the best gauge of fear in the market, fell above 23.
Energy, materials and telecom sectors gained, while health care and technology sectors fell.
A top Federal Reserve official said the Fed will likely have to actto boost the economy unless the outlook improves. Today's high unemployment and low inflation are "wholly unacceptable," William Dudley, president of the Federal Reserve Bank of New York, told a conference of business journalists in New York Friday.
Dudley's speech came on a day loaded with economic news that was largely positive for the economy, with the exception of a disappointing report on manufacturing in September. Stocks closedlower in the previous session, but ended higher for the month, with the Dow and the S&P 500 recording their best September in 71 years.
The market struggled with direction earlier in the session, although the data was largely positive, with the exception of a report on sluggish manufacturing activity nationwide. But trading activity was largely quiet Friday as a new quarter got underway, said Tom Schrader, managing director for U.S. Equity trading at Stifel Nicolaus Capital Markets.
Auto sales were in the spotlight Friday, beginning with General Motors'sSeptember auto sales, which rose 22.1 percent from 17.5 percent in August, more than expected. GM was the first of the major auto retailers to report sales.
The technology sector is among decliners, led by Hewlett-Packard . The tech giant named Leo Apotheker its new CEO after the market closed on Thursday. Apotheker was formerly SAP's chief executive.
Microsoft Chief Executive Steve Ballmer didn't get his full bonus for the fiscal year for apparent failures to keep up with competitors such as Apple .
UAL and Continental closed their merger Friday. The combined company, United Airlines, is a unit of United Continental Holdings, and began trading Friday on the New York Stock Exchange under the symbol "UAL" .
Caterpillar is lower in pre-market trading after Bank of America downgraded the heavy equipment maker to "neutral" from "buy." The brokerage said it doesn't expect the shares to rise much more after it's strong recent performance. The stock rose more than 20 percent in September.
Investment banks received another round of ratings downgrades, this time from Wells Fargo and Credit Suisse. Credit Suisse cut Morgan Stanley's third-quarter earnings-per-share to 8 cents from 58 cents, and its price target to $35 from $37. The brokerage cut Goldman Sachs's third-quarter earnings from $2.30 a share from $3.20, and the bank's price target to $190 from $200.
Wells Fargo cut Morgan Stanley's third-quarter earnings to 18 cents a share from 60 cents, and Goldman's third-quarter earnings to $2.48 a share from $4.31. The brokerage also widened Bank of America's third-quarter loss to 67 cents a share from 63.
Gold remained near record highs and oil pushed above $80 a barrel as the dollar saw continued weakness against other major currencies .
In economic news, the Institute for Supply Management said its index of manufacturing activity slipped to 54.4 percent in September, down from 56.3 in August, in line with expectations.
Construction spending, meanwhile, strengthened, rising 0.4 percent to an annual rate of $811.8 billion, on a rebound in public construction, according to the Commerce Department
Earlier, the Thomson Reuters/University of Michigan reported its index of consumer sentiment rose more than expectedin September to 68.2, better than the forecasted level of 67.
Personal spending rose 0.4 percent in August, the same level as July, and more than the 0.3 percent rise forecast by economists surveyed by Reuters, the Commerce Department reported Friday.
Meanwhile, the personal consumption expenditures price index — excluding food and energy—rose only 0.1 percent for a fourth month.
Futures had been poised for a positive start Friday after China manufacturing data beat expectations and eased concerns that the economic growth engine may be seeing weakness.
Banks and other firms with stakes in futures operators may come under new regulation Friday. The U.S. futures regulator, the Commodity Futures Trading Commission, is expected to propose new rules on the holdings later in the session.
Meanwhile, a council of U.S. regulators set up to find identifying risks to the financial system will meet for the first time later on Friday.
European shares were higher across the board after the Chinese data helped to lift commodity-related stocks. China's purchasing managers' index rose to 53.8 in September from 51.7 in August. Asian stocks closed mostly higheron the news.
On the Calendar:
FRIDAY: Monthly auto sales; BP's Hayward steps down
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