Stocks staged a strong rally Friday as investors took heart from an upbeat outlook from top computer networking gear maker Cisco Systems Inc. and a surge in new home sales.

Cisco, which announced it is embarking on its biggest reorganization since 1997 by restructuring into 11 technology groups, said that it sees signs its business is stabilizing. Also, the government reported new home sales rose at their fastest clip since March, underscoring the housing sector's role in bolstering the U.S. economy.

Technology stocks led the way, helping the Nasdaq Composite Index gain 73.75 points, or 4 percent, to close at 1,916.72. That's the biggest one-day gain since July 12, when it surged 5.26 percent, according to research firm RiskMetrics Group.

The Dow Jones industrial average jumped 194.02 points, or 1.9 percent, to 10,423.17 — also its biggest gain since July 12.  The broader Standard & Poor's 500 Index added 22.83 points, or 1.96 percent, at 1,184.92.

For the week, the Dow finished 1.8 percent higher, while the Nasdaq gained 2.7 percent.

"The catalyst was investors seeing Cisco's comments as a sign that maybe the environment for tech companies is more stable," said Erik Gustafson, who oversees $4 billion for Stein Roe & Farnham Inc. "Housing sales were also good news because they indicate the consumer is still strong and consumer sentiment may remain positive."

Cisco was Nasdaq's most heavily traded stock, climbing $1.49 to $18.25 .

"Cisco really did a run-of-mill organizational change. However, what everyone really sort of clung to were the comments from Chambers — better visibility and so forth," said Charles Payne, analyst at Wall Street Strategies. "I don't know that it's enough to get us out of the doldrums just yet, but ... we need this type of thing to build on."

Other stocks helped by Cisco included communications chipmakers — such as PMC-Sierra Inc., up $2.79 at $34.67, and Broadcom Corp., up $3.06 at $36.93. 

Lucent climbed 37 cents to $7.02, its highest in a month, one day after the embattled company mapped out the second phase of its restructuring plan, and said again it will return to profitability in 2002. 

Lucent also said it expects the communications equipment market, which has been hurt by a cutback in spending by telephone and Internet companies in the slow economy, to rebound in 2003. 

Lucent's optimistic market outlook sparked a rebound in the sector. Other equipment manufacturers, such as JDS Uniphase Corp., rose 64 cents to $7.66 and Juniper Networks, gained $1.08 to $17.28.

Microsoft Corp. gained $2.93 to $62.05 after a federal appeals court sent its antitrust case back to a lower court to determine what remedies should be imposed on the software giant. 

Stocks also got a boost from data that showed sales of new homes surged in July at the fastest rate since March. New home sales rose 4.9 percent to a 950,000 annual rate, the biggest one-month jump since December 2000. 

"Any indication that the economic outlook is stable or improving helps the stock market in the sense that that helps put a floor under earnings," said Pierre Ellis, senior economist at Decision Economics, adding, however, that the volatility in recent data means that nothing is certain.

To be sure, naysayers said they were doubtful Cisco's comments would mean a sustained recovery for the ailing market. 

"The bigger trends, where we continue to go higher ... don't occur until we see tangible proof that the economy is in good shape and the earnings picture continues to be positive,'' said Paul Cherney, S&P Marketscope chief market analyst. 

Wall Street was on a seesaw this week, weighing fears of a protracted economic and corporate profit slowdown against hopes that a rebound is around the corner. 

"We're not reading that much into this," said Jon Brorson, director of equities at Northern Trust, which oversees a total of $330 billion. "We're in a bottoming process, but I just can't believe that this is it, that the bell rang and we're off to the races."

In other economic news, orders for costly manufacturing goods fell 0.6 percent in July as demand for cars offset some of the softness. June's figure was revised sharply downward to show a drop of 2.6 percent. 

Although stock market investors largely shrugged of the report, the data underscored persistent weakness in the recession-ravaged manufacturing sector. 

"It's just another reminder of how bad things are,'' Payne said. "There's no denying that the economy took a heck of a turn for the worse."

The Russell 2000 index, which measures the performance of smaller company stocks, was up 4.25 to 477.67. 

Overseas, Japan's Nikkei stock average rose 0.4 percent. Germany's DAX index was up 2.9 percent, Britain's FT-SE 100 gained 1.4 percent, and France's CAC-40 was up 2.2 percent.

Reuters and the Associated Press contributed to this report.