NEW YORK (CNN/Money) - U.S. stocks closed higher Friday despite a plethora of grim economic reports as investors looked to the Federal Reserve policy meeting and midterm elections next week for guidance on the economy.

The Dow Jones industrial average (up 120.61 to 8517.64, Charts) rose 1.4 percent, while the Nasdaq composite (up 30.95 to 1360.70, Charts) gained 2.3 percent Friday. Standard & Poor's 500 index (up 15.20 to 900.96, Charts) moved 1.7 percent higher.

All three major indexes closed higher for the fourth consecutive week, with the Dow up 0.8 percent, the Nasdaq 2.2 percent higher and the S&P gaining 0.3 percent.

"Despite all of the news and negative comments, there's a lot of cash on the sidelines and a lot of people thinking the market is bottoming, if it hasn't already," said David Briggs, head of equity trading at Federated Investors. "Every time the market pulls back, you see these quick rallies."

Briggs added that during the past 12 sessions investors have jumped into the markets after sharp drops, fearing that they might miss out on gains.

After the slew of negative economic reports this week, many economists are saying the Fed, the nation's central bank, will cut its target for short-term interest rates at its meeting Wednesday. The idea that the Fed might cut the rate from what's already a 40-year low has tended to boost investor sentiment and market buying.

"I think the Fed is between a rock and a hard place -- psychologically people are looking for a cut. I would do a shock cut of 50 basis points," said Jim Glickenhaus, stock market strategist at Glickenhaus & Co. "The average American would rather have a bit of inflation and know that they are going to have their job next year. I think they are going to cut 25 and maybe 50 points." A basis point is a hundredth of one percent.

Some investors likely were hanging on the sidelines ahead of the midterm elections Tuesday, which could swing party dominance in Congress and have an effect on its approach to economic policy.

Investors also are likely to consider the quarterly earnings reports of networking company Cisco Systems (CSCO: Research, Estimates) and entertainment group Walt Disney (DIS: Research, Estimates) next week. Disney is the last of the Dow components to report.

In economic news Monday, the Commerce Department plans to report data on September factory orders.

The government issued weak reports on several areas of the economy Friday morning, including employment, manufacturing activity and personal spending, but their negative effect on the market was short-lived.

The Labor Department said the unemployment rate jumped to 5.7 percent from 5.6 percent in September, a slightly narrower increase than analysts' expected rise to 5.8 percent. The report also said that 5,000 jobs were lost last month, an improvement over the revised 13,000 jobs lost in September. Economists had expected flat payrolls.

Also before the bell, the Commerce Department said consumers cut back on personal spending in September against an increase in August. In a separate report, September construction spending grew by a more-than-anticipated 0.6 percent.

Early in the session, the Institute for Supply Management said manufacturing activity fell to 48.5 in October from 49.5 in September. Economists expected a decline in the index to 48.9, according to Briefing.com. Any reading below 50 signals contraction in the sector. On the positive side, the report showed an uptick in new orders.

Microsoft (MSFT: down $0.47 to $53.00, Research, Estimates) led the few decliners on the Dow, on worries that the No. 1 software maker's antitrust settlement with the U.S. government might not be accepted by a federal judge.

But after the markets closed, U.S. District Judge Colleen Kollar-Kotelly rejected imposing additional sanctions on Microsoft on top of a previous settlement reached by the company and the Justice Department earlier in the year. The stock rose $2.50 to $55.50 in after-hours trading.

Helping lift the Dow throughout the day, Boeing (BA: up $0.65 to $30.40, Research, Estimates) CFO Michael Sears told Reuters the aircraft maker remains profitable despite slower sales and that it should benefit from cost-cutting measures.

Asian-Pacific stocks closed mostly lower Friday, although Tokyo's Nikkei index finished with a 0.5 percent gain. European markets ended mostly lower.

Treasury prices ended lower, with the 10-year note yielding 4 percent. The dollar fell to a one-month low against the yen and a two-month low against the euro.

Light crude oil futures fell 20 cents to $27.13 a barrel. Gold headed higher.

Market breadth was positive. On the New York Stock Exchange, advancers beat decliners 2 to 1 as 1.4 billion shares traded. On the Nasdaq, advancers beat decliners 2 to 1 as 1.8 billion shares changed hands.