* Chinese manufacturing picks up, boosts commodities
* U.S. manufacturing growth slows in Sept
* Market regulators issue flash-crash report
* Dow up 0.4 pct, S&P up 0.5 pct, Nasdaq up 0.1 pct (Updates to late afternoon trade; changes byline)
By Angela Moon
NEW YORK, Oct 1 (Reuters) - Wall Street stock indexes rose on Friday on gains in resource stocks, but investors kicked off the final quarter of the year on a less enthusiastic note after data showed a slowdown in manufacturing growth in the U.S.
Stocks ended the third-quarter with gains unseen in a year as investors brushed off the possibility of a double-dip recession and on hopes that the Fed would inject more easy money into the economy to spur economic growth.
Larry McMillan, president of McMillan Analysis Corp, said even though intermediate-term indicators remain bullish for the market, a sharp short-term sell-off could occur, given several dissonant factors.
He said "the number of negative divergence that have occurred -- along with the modest overbought condition of the breadth oscillators," were a source of concern, including "cheap stock options, spot VIX edging higher, among others," he said.
Options traders also appeared to be pricing in higher volatility for the near-term. As of Thursday, the the CBOE Volatility Index, Wall Street's so-called fear gauge, and the CBOE Nasdaq Volatility Index both closed higher for the fourth straight session.
"Concerns about upcoming economic reports and the release of third-quarter earnings results appear to have traders worried," said Scott Fullman, director of derivative investment strategy at WJB Capital Group.
"New healthcare regulations go into effect and the upcoming mid-term elections increase the probability for higher volatility."
The Dow Jones industrial average was up 48.55 points, or 0.45 percent, at 10,836.60. The Standard & Poor's 500 Index was up 5.48 points, or 0.48 percent, at 1,146.68. The Nasdaq Composite Index was up 1.88 points, or 0.08 percent, at 2,370.50.
The ISM manufacturing report offset enthusiasm earlier in the morning generated by data out of China showing a pick-up in its manufacturing sector.
A mixed round of U.S. data left the market searching for direction as construction spending rose unexpectedly in August, while September consumer sentiment improved slightly, but remained at its weakest level in more than a year.
The S&P 500 also hit a key resistance level after it climbed as high as 1,150.30 before losing ground. That level is viewed as the top of a recent range after stocks surged during September.
Technology shares ranked among the laggards as investors locked in some profits the day after indexes wrapped up the best quarter in a year. Amazon.com was among the biggest drags on the Nasdaq, down 2.7 percent at $152.82.
On the upside, resource stocks gained as metal and oil prices returned to recent new highs. Shares of Freeport McMoRan Copper and Gold Inc rose 3.6 percent to $88.51 and Occidental Petroleum Corp rose 3.4 percent to $80.94.
In corporate news, shares of Hewlett-Packard fell 3.8 percent to $40.50 after the company named former SAP Chief Executive Leo Apotheker as its new CEO and president.
Bank of America-Merrill Lynch on Friday downgraded Caterpillar Inc, a maker of heavy equipment, to "neutral" from "buy," saying that after a recent run-up in the shares, it saw limited upside. The Dow component was off 0.6 percent at $78.24.
Market regulators said a massive sale of futures contracts by Waddell & Reed exacerbated the market's plunge on May 6, in what has become known as the "flash crash." (Reporting by Angela Moon; Editing by Theodore d'Afflisio)