With the Institute of Supply Management's manufacturing index posting the 16th straight month of growth in that sector, investors' faith in the economic recovery was renewed. Strong increases in construction spending also improved the mood on Wall Street.

Oil prices could remain a problem, however, as futures trading closed above $50 a barrel for the first time because of uncertainty over the political situation in Nigeria, one of Africa's top oil producers. A barrel of light crude settled at $50.12, up 48 cents, on the New York Mercantile Exchange. Crude futures prices rose 2.5 percent for the week.

"We've gotten through September, traditionally the worst month for stocks, in pretty good shape," said Joseph Keating, chief investment officer at AmSouth Asset Management. "If oil prices can move down further, I think we'll be set up nicely for a rally in November, December and early January."

According to preliminary calculations, the Dow Jones industrial average rose 112.38, or 1.1 percent, to 10,192.65.

Broader stock indicators were sharply higher. The tech-focused Nasdaq composite index gained 45.36, or 2.4 percent, to 1,942.20, its highest closing level since July 9. The Standard & Poor's 500 index was up 16.92, or 1.5 percent, at 1,131.50, posting its best finish since June 30.

For the week, the Dow gained 1.5 percent, the Nasdaq was up 3.3 percent and the S&P 500 rose 1.9 percent. Bargain hunting in the technology sector and portfolio shuffling at the end of the quarter helped stocks move higher despite rising oil prices and losses due to Dow component Merck & Co, which lost 27 percent of its value yesterday after pulling its Vioxx arthritis drug from the market due to an increased risk of heart attack and stroke.

Today, signs of strength in manufacturing buoyed stocks, though whether the strength will translate into more jobs won't be known until the government's next jobs report, due Oct. 8. The September ISM manufacturing index reading came in at 58.5, slightly better than the 58.3 analysts had expected, but lower than the 59.0 reading in August.

The Commerce Department reported construction spending rose 0.8 percent in August, far outstripping the 0.3 percent Wall Street expected.

PeopleSoft surged $2.98 to $22.83 after the business software maker fired chief executive Craig Conway, replacing him with chairman and founder David Duffield.