Updated from 4:03 p.m. EDT

Investors bought stocks amid encouraging economic data and paltry volume Friday, helping the major averages secure another weekly and monthly gain.

The

Dow Jones Industrial Average

climbed 40 points, or 0.4%, to 9414 and the

Nasdaq

rose 10 points, or 0.6%, to 1810. The

S&P 500

advanced 5 points, or 0.5%, to almost 1008.

"There was caution going into the day, with a lot of closely followed economic numbers being reported. As soon as those came out fairly in line with expectations, everyone went home," said John Hughes, market analyst at Shields & Co.

Volume was anemic at both the

NYSE

and the Nasdaq, with 950 million shares trading hands at the Big Board and 1.2 billion at Nasdaq. Advancers beat decliners by a 2-to-1 margin at the NYSE and 3-to-2 at the Nasdaq.

The major averages rose for the week. The Dow gained 0.7%, the Nasdaq climbed 2.5%, and the S&P rose 1.5%. They also locked in monthly gains of 2%, 4.3% and 1.8%, respectively.

Looking ahead, "there's a lot of caution about September, and as such, investors have either held off on buying or done some selling. So they are prepared for it, and if it does not unfold in the way people are expecting, we can have some upside next month," Hughes said.

In economic news, the Chicago purchasing managers' index rose to 58.9 in August, its fourth-straight increase and its highest level since May of last year. Any reading above 50 signals expansion. Most encouraging was an unexpected rise in the gauge's employment reading.

The data sparked selling in bonds. The 10-year note fell 11/32, pushing its yield up almost 5 basis points to 4.46%. The yield on the 30-year added 1 basis point to 5.22%.

Meanwhile, consumer spending, which represents about 70% of the U.S. economy, climbed 0.8% in July helped by auto purchases, from a revised 0.6% rise the previous month. Personal income had a 0.3% increase following a revised 0.4% rise in June. Both readings were in line with economists' estimates.

"The numbers were in line with expectations, but nonetheless underscore the strength of consumption now that the tax cut is kicking in," wrote Christopher Low, chief economist at FTN Financial, a division of First Tennessee National. "Keep in mind, however, that there was still plenty of spending power in July from mortgage refinancing, spending power that is fading rapidly now that long-term rates are higher."

The University of Michigan said its consumer sentiment index unexpectedly fell to 89.3 in August from 90.2 the prior month. Economists had forecast the number to rise to 90.4.

Federal Reserve

Chairman

Alan Greenspan delivered a speech at a meeting in Jackson Hole, Wyo., sponsored by the Kansas City Fed. Without mentioning the current economic situation, Greenspan rejected the possibility of using inflation-targeting in the central bank's monetary policy, saying he prefers risk management over strict rules.

Novellus Systems

(NVLS)

was on the spotlight Friday after the company reaffirmed its quarterly earnings but said it will take a $70 million charge to write down inventory. Novellus shares slipped 89 cents, or 2.2%, to $39.96.

Nokia

(NOK) - Get Report

said it is partnering with the U.K.'s

Psion

(PON)

to potentially acquire

Motorola's

(MOT)

stake in Symbian, a mobile software consortium. Nokia fell 10 cents, or 0.6%, to $16.29.

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In the pharmaceutical sector,

Bristol-Myers Squibb

(BMY) - Get Report

could be planning to pull its antidepressant drug Serzone from the Canadian market because it is suspected in liver damage,

The Wall Street Journal

reported. Shares gained 20 cents, or 0.8%, to $25.37.

Meanwhile,

GlaxoSmithKline

(GSK) - Get Report

said it got approval from the Food and Drug Administration to sell Wellbutrin XL, an antidepressant that offers lower risk of weight gain and sexual side-effects. The company will start marketing the drug in a couple of weeks. Shares fell 24 cents, or 0.6%, to $38.83.

A few shares were gaining momentum at the Nasdaq. Coffee-shop chain

Starbucks

(SBUX) - Get Report

rose 75 cents, or 2.7%, to $28.39 after it announced comparable-store sales rose 9% in August, ahead of its forecast.

Qualcomm

(QCOM) - Get Report

climbed 36 cents, or 0.9%, to $41.33 after UBS analysts raised their price target on the stock to $38 from $33 on expectations the company will meet Wall Street estimates in the current quarter.

Elsewhere, communications-semiconductor maker

Applied Micro Circuits

(AMCC)

said late Thursday it will purchase

JNI

(JNIC)

in a deal worth $190 million in cash. Applied Micro fell 11 cents, or 1.9%, to $5.82.

In research notes, Piper Jaffray said

Yahoo!

(YHOO)

could see an upside in third-quarter advertising revenue, which could help the Internet services company beat its own earnings estimates. Yahoo! rose $1.04, or 3.2%, to $33.39.

In other earnings news,

Kmart

(KMRT)

reported its first quarterly numbers since emerging from Chapter 11 in May. Its loss narrowed amid cost-cutting, but the discount retailer also said revenue declined. Kmart's board approved the repurchase of up to $10 million worth of the company's outstanding stock. Kmart gained $1.23, or 4.2%, to $30.67.

Overseas markets were mostly higher, with London's FTSE 100 down 0.4% at 4180 and Germany's Xetra DAX up 0.3% at 3502. In Asia, Japan's Nikkei closed 1.2% higher at 10,343, while Hong Kong's Hang Seng gained 1.4% to 10,908.

The dollar was weaker against the euro and the yen.

On Thursday, the Dow Jones Industrial Average rose 40.42 points, or 0.4%, to 9374.21. The Nasdaq rose 18.05 points, or 1%, to 1800.18, and the S&P 500 ended up 6.05 points, or 0.6%, at 1002.84.