Stocks gain after manufacturing eases Fed concern

NEW YORK (AP) — For now, bad news is good for the stock market.

Investors judged that the latest weak economic reports will make it more likely that the Federal Reserve will continue to stimulate the economy and support a rally on Wall Street.

On Monday, a measure of U.S. manufacturing fell in May to its lowest level since June 2009 as overseas economies slumped and weak business spending reduced new orders to factories.

That helped convince investors that the Fed will hold off from slowing down its $85 billion bond-buying program. Speculation that the central bank was set to ease that stimulus, a major support for this year’s rally in stocks, has caused trading to become volatile in the last two weeks.

The Standard & Poor’s 500 index fell in the morning after the manufacturing report was published at 10 a.m. It moved between gains and losses for much of the day, then climbed decisively in the last hour of trading.

The “good news is bad news” interpretation of economic reports may support stocks in the short term, but at the end of the day the economy has to keep improving for stocks to reach new highs, said Alec Young, a global equity strategist at S&P Capital IQ.

Federal Reserve Bank of Atlanta President Dennis Lockhart also helped allay investors’ concerns that the central bank was poised to stop the stimulus.

He said Fed officials remain committed to the stimulus program.

The S&P 500 index closed up 9.68 points at 1,640.42, or 0.6 percent. The Dow Jones industrial average rose 138.46 points to 15,254.03, a gain of 0.9 percent. The Nasdaq composite, which is heavily weighted with technology stocks, rose 9.45 points to 3,465.37, an increase of 0.3 percent.

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