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US stocks rose on Monday as weaker-than-expected factory activity supported views the Federal Reserve will keep economic stimulus in place, while gains in Merck & Co lifted drug companies.
US manufacturing contracted in May, hitting the lowest level since June 2009, according to the Institute for Supply Management, though a government report showed spending on construction rose slightly in April.
"I think investors are thinking the bigger issue is rapidly rising interest rates because that is what's foremost in their minds," said Bryant Evans, portfolio manager at Cozad Asset Management, in Champaign, Illinois.
Trading was volatile on higher-than-average volume. All three indexes gained at the open, but the S&P 500 and Nasdaq turned negative in late morning before reversing course again to finish higher.
The S&P consumer staples index, which helped lead recent losses along with other sectors that include many stocks that pay high dividends, rose 1.1 % and was the day's best-performing sector. US bond prices were flat to higher.
Speculation the Fed may reduce its monetary stimulus earlier than expected has pushed stocks down in recent sessions and lifted bond yields.
Merck shares gained 3.7 % to $48.45 and gave the Dow its biggest boost. A Merck drug designed to unmask tumor cells and mobilize the immune system into fighting cancer helped shrink tumors in 38 % of patients with advanced melanoma in an early-stage study. The PHLX drug sector index advanced 1 %.
The Dow Jones industrial average was up 138.46 points, or 0.92 %, at 15,254.03. The Standard & Poor's 500 Index was up 9.68 points, or 0.59 %, at 1,640.42. The Nasdaq Composite Index was up 9.45 points, or 0.27 %, at 3,465.37.
Despite the gains in the major indexes, decliners outpaced advancers on the New York Stock Exchange.
In a week of heavy data, the most important will be the May non-farm payrolls report on Friday. Reuters' survey of analysts shows they expect the economy created on average 170,000 jobs, slightly higher than the 165,000 jobs added in April. The Fed's Beige Book survey of regional economic conditions is on tap for Wednesday.
On the Nasdaq, Intel rose 4% to $25.24. Samsung Electronics Co said it will use Intel processors to power a new version of one of its top-tier Android tablets. FBR raised its rating on the stock.
F5 Networks Inc was among the day's worst performers, ending down 4.9% to $79.16 after Morgan Stanley downgraded the network gear maker.
Volume was 7.77 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with average daily closing volume of about 6.4 billion this year.
Decliners outpaced advancers on the NYSE by about 16 to 13 while advancers outpaced decliners on the Nasdaq by a ratio of about 7 to 5.
