"Investor psychology has changed. The market has become very resilient to bad news. Today is a good example of that," said Michael Murphy, head trader at Wachovia Securities in Baltimore. "Nobody wants to be left behind."

Stocks overcame news that consumer spending and manufacturing activity declined and the unemployment rate increased.

After falling as much as 87 points in early trading, the Dow Jones industrial average closed up 120.61, or 1.4 percent, at 8,517.64, according to preliminary calculations. The Dow had its second-best October with a gain of 10.6 percent last month, just short of the 10.7 percent advance in October 1982. It also was the Dow's best month since January 1987 when the blue chips rose 13.8 percent.

The broader market also recovered, moving into positive territory. The Nasdaq composite index rose 30.96, or 2.3 percent, to 1,360.71, having advanced 13.5 percent in October. The Standard & Poor's 500 index rose 15.20, or 1.7 percent, to 900.96, following its monthly advance of 8.7 percent.

The indexes scored a four-week winning stretch for the first time since the four weeks that ended Aug. 23. For the week, the Dow rose 0.9 percent, the Nasdaq gained 2.2 percent and the S&P advanced 0.4 percent.

The market was initially disturbed by news about the economy. The Commerce Department reported that consumers scaled back their spending by 0.4 percent in September, the largest decline in 10 months. That decline is worrisome as consumer spending accounts for two-thirds of the economy.

In a second report, the Tempe, Ariz.-based Institute for Supply Management said that manufacturing activity fell in October for the second straight month. Its index of business activity declined to 48.5 in October compared with 49.5 in September. Analysts had been expecting a reading of 48.9.

And the Labor Department reported that the jobless rate increased to 5.7 percent in October, up from 5.6 percent in September. The rate was just below the 5.8 percent that analysts were expecting.

Analysts said investors were able to shake off the economic news because of Wall Street's success in October, during which companies reported better-than-expected earnings, and because the fourth quarter typically is the strongest for stocks.

"The undercurrent for investment is still positive," said A.C. Moore, chief investment strategist for Dunvegan Associates in Santa Barbara, Calif.

Moore said bullish investors also were heartened by an uptick in the ISM's new orders index, which rose to 50.9 percent in October from 50.2 percent in September. An increase in orders indicates that business activity is strengthening.

The reports might have increased the chances that the Federal Reserve would lower interest rates when it meets next week. But after 11 cuts last year, analysts say many investors would prefer no more cuts if that means the Fed can say the economy is turning around and doesn't need them.

Consumer cyclical stocks had some winners today. Retailer Kohl's rose $2.55 to $61, while General Motors advanced 77 cents to $34.02.