Stocks Open New Quarter With Rally

Stocks rose sharply Friday in heavy trading, with the Nasdaq and S&P indexes closing at their highest levels in about three months, as investors welcomed the departure of PeopleSoft's chief executive and a pair of upgrades in the semiconductor sector.

The Dow Jones industrial average (search) closed up 112.38 points, or 1.11 percent, at 10,192.65. The Standard & Poor's 500 Index (search) ended up 16.92 points, or 1.52 percent, at 1,131.50. The technology-laced Nasdaq Composite Index (search) ended up 45.36 points, or 2.39 percent, at 1,942.20.

It was the Nasdaq's highest close since July 9, and the S&P's highest close since June 30.

For the week, the Dow ended up 1.45 percent, while the S&P advanced 1.93 percent and Nasdaq rose 3.34 percent. All three indexes turned in their highest weekly percentage gain in six weeks.

Shares of PeopleSoft (PSFT) rose more than 15 percent after its board decided to remove Craig Conway as president and chief executive, citing "a loss of confidence" in Conway. Rival Oracle Corp. (ORCL), which has made a hostile bid for PeopleSoft, climbed 5 percent. Analysts said the dismissal of the PeopleSoft CEO increased the chances that Oracle's takeover effort would succeed.

Stocks also benefited from economic data. With the Institute of Supply Management's (search) manufacturing index posting the 16th straight month of growth in the sector, investors' optimism over the strength of the economy was renewed. Strong increases in construction spending also improved the market's mood,

Oil prices could remain a problem, however, as futures trading closed above $50 per barrel for the first time due to 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."

Shares of PeopleSoft rose $2.98 to $22.83, while Oracle climbed 62 cents to $11.90.

"It looks like Oracle is going to be able to close their deal for PeopleSoft, which has tech investors excited. And that could indicate more mergers down the road in the tech sector, which bodes well," said Keith Keenan, vice president of institutional trading at Wall Street Access. "Add to that the economic data, which looks decent, and the start of the third quarter, and that's got things going today."

Thursday, the Dow closed down almost 60 points, dragged down by Merck & Co (MRK). The company announced a global withdrawal of a key company drug, sending its stock down 26 percent. Shares of Merck rose 2 percent, or 65 cents, to $33.65 on the New York Stock Exchange on Friday.

The latest reading of the University of Michigan's (search) consumer sentiment index came in lower than economists had expected, but did not appear to have a negative impact on the market. The index reading for September was 94.2, down from the 95.8 posted in August and less than the 96 reading Wall Street had forecast.

The Commerce Department (search) reported that construction spending rose 0.8 percent in August, far outstripping the 0.3 percent Wall Street expected. July's construction spending increase was revised upward as well, to 1.1 percent from 0.4 percent, giving investors hope that both businesses and consumers continued to put money into real estate despite recent interest rate increases from the Federal Reserve .

General Motors Corp. (GM), the world's largest automaker, posted a 20 percent rise in U.S. vehicle sales for September, boosted by incentives. GM shares rose 1.5 percent to $43.14.

Technology shares saw renewed interest after J.P. Morgan upgraded two semiconductor equipment makers, Novellus Systems Inc. (NVLS) and Teradyne Inc. (TER), breathing new life into the struggling technology sector. Novellus Systems climbed $1.36 to $28, while Teradyne 96 cents to $14.36. The Philadelphia Semiconductor Index was up more than 4.6 percent as well.

Northwest Airlines Corp. (NWAC) announced that CEO Richard Anderson was leaving the company to become executive vice president at UnitedHealth Group Inc. Northwest moved 34 cents higher to $8.55, while UnitedHealth was up 2 cents at $73.76.

Research In Motion Ltd. (RIMM), maker of the popular Blackberry e-mail pager, fell $2.54 to $73.80 despite a strong earnings report late Thursday. The company beat Wall Street forecasts for its latest quarterly earnings by 2 cents per share on a substantial hike in revenue. The company also upgraded its profit outlook for the current quarter.

Trading on the first day of the quarter was heavy, with 1.6 billion shares changing hands on the New York Stock Exchange and about 1.8 billion shares trading on Nasdaq. Both were higher than their daily average last year.

On the New York Stock Exchange, stocks on the rise outnumbered declining stocks by about 3 to 1. More than two stocks advanced for every one that declined on Nasdaq.

The Russell 2000 index of smaller companies was up 12.09, or 2.1 percent, at 585.03.

Overseas, Nikkei stock average climbed 1.5 percent, and the U.S. markets' performance further boosted European stocks. Britain's FTSE 100 closed up 1.9 percent, France's CAC-40 rose 2.5 percent for the session, and Germany's DAX index surged 2.6 percent.

Reuters and the Associated Press contributed to this report.