By Matt Jarzemsky 

The Dow industrials rose in a quiet preholiday session Friday, capping their biggest monthly gain since February.

The Dow Jones Industrial Average added 18.88 points, or 0.1%, to 17098.45. The blue-chip benchmark closed out its fourth-straight weekly gain to finish 3.2% higher on the month.

The S&P 500 added 6.63 points, or 0.3%, to 2003.37, an all-time high. The Nasdaq Composite Index rose 22.58 points, or 0.5%, to 4580.27.

While Friday offered little in the way of economic news or big-name corporate earnings, investors say the backdrop remains positive for stocks, benefiting from better-than-expected corporate earnings, improvement in much of the U.S. economy, and investors' distaste for low-return prospects in other assets such as bonds.

When it comes to corporate earnings and the economy, "growth looks relatively modest, but no matter how you look at the equity market it really doesn't look overvalued," said Margi Patel, who oversees $1.4 billion in stocks and bonds as a senior portfolio manager at Wells Capital Management.

"You could make a case that over the next 12 months, equity returns will be modest than over the last 12 months," she added.

But Ms. Patel expects interest rates to remain low, particularly because of the lack of inflation in the U.S. economy, and as such "I think equity returns will surpass those in almost all areas of the fixed income market," she said.

Trading desks were largely quiet Friday, in line with the market's recent summer lull, according to market participants. The market will be closed Monday for the Labor Day holiday in the U.S.

This week through Thursday, an average 4.38 billion shares have changed hands daily, 30% below the year-to-date average, according to FactSet.

Shares of sectors seen as particularly risky outperformed. The Russell 2000 index of small companies' shares added 0.7%. The Nasdaq Biotechnology Index increased 1%.

Bonds also closed out a big monthly rally, fueled in part by optimism central banks will maintain an accommodative stance toward markets. The 10-year U.S. Treasury note was little changed, yielding 2.347%. But the note's yield--which moves inversely to its price--in August posted its biggest slide since January.

On the economic front Friday, household spending fell 0.1% in July, the Commerce Department reported, bucking economists' median forecast for a 0.1% increase. Personal income rose a less-than-expected 0.2%.

Russian President Vladimir Putin on Friday used harsh language against Ukraine and its allies over the failure of peace talks. Ukraine has accused Russia of sending troops to fight alongside rebels in eastern Ukraine.

European stocks rose Friday, with the Stoxx Europe 600 adding 0.3%, reversing earlier gains. The euro zone's annual rate of inflation fell to 0.3% in August from 0.4% in July. That is a far cry from the European Central Bank's medium-term target of inflation just under 2%. The continued decline in inflation has added to expectations that the ECB will be forced to take more aggressive action to boost the region's economic recovery.

In corporate news, Avago Technologies rallied 7.5% and hit a record high after the chip company reported better-than-expected quarterly results.

In commodity markets, crude-oil futures rose 1.5% to settle at $95.96 a barrel. Gold futures fell 0.2% to settle at $1,285.80 an ounce.

Write to Matt Jarzemsky at matthew.jarzemsky@wsj.com