US stocks up despite poor factory data

US stocks rose yesterday as weaker-than-expected factory activity supported views the Federal Reserve will keep economic stimulus in place, while gains at Merck 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, of Cozad Asset Management, 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 per cent 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 per cent 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 percent of patients with advanced melanoma in an early-stage study. The PHLX drug sector index advanced 1 per cent.

The Dow Jones industrial average was up 138.46 points, or 0.92 per cent, at 15,254.03. The Standard & Poor’s 500 Index was up 9.68 points, or 0.59 per cent, at 1,640.42. The Nasdaq Composite Index was up 9.45 points, or 0.27 per cent, at 3,465.37.