WASHINGTON — A gauge of consumer sentiment is at its highest level in four months, led entirely by expectations, according to data released Friday.

The University of Michigan-Thomson Reuters consumer-sentiment gauge rose to a final September reading of 78.3 – the highest since May – from 74.3 in August. Economists polled by MarketWatch had expected the final reading to rise to 79.5, supported by higher stock prices. A preliminary September reading pegged the sentiment level at 79.2.

“The improvement was due to a reduction in their debt levels and an increase in the value of their assets, primarily because of rising stock prices and home values,” said Richard Curtin, the survey's chief economist. “Nonetheless, consumers anticipate a rocky economic road ahead. Small wage increases, rising food prices, slowly declining joblessness, higher taxes, and an overall economy that will not expand continuously but suffer some setbacks over the next several years.”

The sentiment gauge, which covers how consumers view their personal finances as well as business and buying conditions, averaged about 87 in the year before the most recent recession. Economists watch sentiment data to get a feel for the direction of consumer spending.

According to the UMich data released Friday, a gauge of consumer expectations rose to 73.5 in September from 65.1 in August, while the barometer of consumers' views on current conditions declined to 85.7 from 88.7.

According to UMich, more consumers expect a continuing economic expansion than a contraction.

“In the September survey, more consumers spontaneously reported hearing news about job gains, and expected continued job gains during the year ahead,” according to the report.

But most consumers expect small gains in wages, according to the report.

“Half of all households anticipate declining living standards as their incomes fail to keep pace with inflation,” according to the report.

Friday's report echoes a separate reading on consumer confidence released earlier this week that showed brighter expectations. The Conference Board's consumer-confidence index rose in September to the highest level since February.

Elsewhere Friday, the U.S. Department of Commerce reported that consumer spending growth in August was the strongest in six months and stocks posted solid gains for the third quarter, although the ride got bumpy at the end.

Stocks fell five days of the last six, including on Friday, the last trading day of the quarter. But the big indices are still up 4 percent or more for three months. They're ahead 10 percent or more for the year.

That's despite all the anxiety about the euro, Iran and U.S. politics.

Actually, those worries are exactly why stocks are up, said Uri Landesman, who runs the Platinum Partners hedge fund. He notes that investors around the world feel that U.S. stocks look pretty good, compared to some of the alternatives.

“People are scared, and 2008 wasn't that long ago, and Europe remains a problem,” he said. Those factors “are keeping the market up in the face of some really questionable economic data and questionable behavior by the Fed.”

The consumer spending news pushed stocks lower. The Dow Jones industrial average fell 48.84 points to close at 13,437.13. The Standard & Poor's 500 index fell 6.48 points to 1,440.67. The Nasdaq composite index fell 20.37 points to 3,116.23. The losses had been steeper in the morning before stocks recovered somewhat around midday.

Stocks fell in all industry groups in the S&P 500 except utilities. Telecommunications and information technology stocks had the biggest losses.

Many investors worry that the recent gains by stocks aren't justified, considering the risks of a confrontation with Iran, weak corporate profits, and Europe's troubles.

“People are wrestling with that disconnect, and trying to choose which chess pieces to move in anticipation” of whatever they think will happen next, said Lawrence Creatura, portfolio manager at Federated Investors.

“It's been a good quarter,” he said, “but at least for the day we seem to be limping across the finish line.”

Investors are still concerned about Spain's financial health. The Bank of Spain released an audit Friday showing that seven of the country's banks failed stress tests. Moody's, the credit rating agency, is also expected to weigh in on Spain's creditworthiness, and there are concerns the government's rating will be cut to “junk” status.

Stocks in Europe fell. The CAC 40 in France fell 2.5 percent, the FTSE 100 in Britain was down 0.6 percent, and Germany's DAX fell 1 percent.

Stocks finished higher in Asia on continued speculation that China's central bank will act soon to help the world's No. 2 economy.

For the year so far, the Dow is up 10 percent, the S&P 500 up almost 15 percent, and the Nasdaq is up 20 percent.

Among U.S. stocks with noteworthy moves:

– Bank of America Corp. fell 14 cents, or 1.6 percent, to close at $8.83 after agreeing to pay $2.43 billion to settle a class-action lawsuit related to its acquisition of Merrill Lynch. The company was the best performer of the 30 stocks in the Dow during September, rising 10.5 percent. Home Depot was the best Dow stock for the third quarter.

– Blackberry maker Research in Motion Ltd. jumped 36 cents, or 5 percent, to $7.50 after reporting a smaller-than-expected quarterly loss on Thursday night.

– Shoemaker Nike fell $1.09, or 1.1 percent, to $94.91 after saying its first-quarter net income fell 12 percent because higher sales were offset by increased ad spending. The results were better than Wall Street had expected, but investors seemed more worried about the trail ahead for Nike rather than its performance in the last quarter.

– McDonald's Corp. fell $1.52, or 1.6 percent, to $91.75 after Janney Capital Markets cut its rating and price target, saying difficult year-ago comparisons may pressure sales at stores open at least 13 months, which is a key revenue metric for retailers.

The yield on U.S. 10-year Treasury notes fell to 1.629 percent.

The Associated Press contributed to this story.