Stocks Mixed After Weak Economic Data

NEW YORK (MarketWatch) -- U.S. stocks were mixed and little changed on Monday, as investors weighed a slew of data revealing not only tame inflation but also weak spending, manufacturing and construction data, while upbeat earnings from Verizon Communication and a share buyback from Merrill Lynch provided only mild support.

Investors are also considering whether the market's record run in April -- as earnings reports easily beat analysts' lowered expectations -- can continue further, without some sort of consolidation or correction.

The Dow Jones Industrial Average still overcame early hesitations to gain 27 points to 13,147, as 17 of its 30 components rose.

Leading the gains on the Dow, Procter & Gamble rose 2.3% ahead of its earnings on Tuesday. Citigroup gained 1.8% after the Financial Times reported that the bank may become the target of activist hedge funds, who may seek to break it up.

Verizon Communications -- whose earnings and revenue topped Wall Street expectations -- rose 1.3%.

The blue-chip average also received support from the likes of IBM , 3M Co. , and General Motors Corp. .

Last week, the market advanced strongly, including Friday when news that economic growth in the first-quarter was a much weaker-than-expected 1.3% failed to faze investors.

"If the economy is doing so poorly, why is the stock market cheering?," asked Paul Nolte, director of investments at Hinsdale Associates, in a note.

Investors, he said, are waiting for "the 'big' economic reports that tend to move markets," namely the April jobs report to be released on Friday, and the ISM reports on manufacturing and the service economy, on Tuesday and Thursday respectively.

"Either these reports will confirm [the weak growth number] or they will point to a one-quarter wonder and investors will continue to cheer stocks higher," Nolte said.

The S&P 500 index rose 0.4 points to 1,493, while the Nasdaq Composite fell 10.5 points to 2,546.

Stocks rode a four-session winning streak to close Friday at another record high. The Dow has gained ground in 11 of the last 12 sessions, and in 18 of the last 20. .

Philip Roth, chief technical market analyst at Miller Tabak said there were several signs suggesting the market needs to consolidate.

But "as long as initial support holds and pullbacks do not generate accelerating downside momentum, probabilities favor attempts to extend the advance," he said.

Trading volume showed 1 billion shares exchanging hands on the New York Stock Exchange and 1.3 billion trading on the Nasdaq stock market. Declining issues topped gainers by 16 to 15 on the NYSE, and by 15 to 12 on the Nasdaq.

By sector, utilities , oil and computer hardware led the gains, while transportation , gold and software .

Financials - a key sector for the market - also turned higher.

Brokerage behemoth Merrill Lynch gained 0.8% after saying it planned to buy back up to $6 billion of its own stock.

Monday was also fairly light on merger news, which - along with corporate share buybacks -- have been one of the key contributors of the market's advance in recent years.

Of note, International Securities Exchange is in talks to be acquired by Deutsche Boerse for $2.8 billion, and Dominion Resources agreed to sell its Gulf of Mexico fields to Eni for $4.76 billion.

Elsewhere, Delta Air Lines , the No. 3 U.S. air carrier, emerged from bankruptcy on Monday a year ahead of schedule after a 19-month restructuring.

Inflation eases but so does growth

Stock futures came under pressure before the open, following news that nominal spending rose 0.3% in March. Adjusted for inflation, spending fell 0.2%. Economists had expected spending to rise 0.5%.

The core personal consumption expenditure price index, the Federal Reserve's favorite measure of inflation, was flat in March, bringing the year-ovr-year increase down to 2.1% from 2.4% in February. Economists had expected a 0.1% gain in the core PCE.

Ian Shepherdson, chief U.S. economist at High Frequency Economics, said the PCE is now "within a hair" of the Fed's 1-2% comfort zone.

"Given the drag from housing and flat capital spending, the odds on a negative [second quarter] GDP number are rising," he said. "The Fed cannot ignore this indefinitely."

Separately, manufacturing activity in the Chicago region rose at a slower pace April. The Chicago purchasing managers' index fell to 52.9% from 61.7% in March, and below the 54.5% seen in March.

And spending on U.S. construction projects rose by only 0.2% in March, below the 0.4% expected by economists.

Other markets

The U.S. dollar was mixed following the data, with the greenback falling slightly against the Japanese yen, while rising against the euro.

The recent drop in the dollar, although caused by expectations of a slowing U.S. economy, has been credited with boosting the dollar-denominated profits of U.S. multinationals, helping lift the overall earnings season above expectations.

The tame inflation data helped boost Treasurys, sending yields lower. The benchmark 10-year note gained 11/32 to 99 24/32 in price, while its yield fell to 4.648%.

In the commodities markets, crude for June delivery lost 56 cents to $65.90 a barrel .

June gold gained 20 cents to $681.90 an ounce.

Bourses in Asia were mostly higher, with China's Shanghai Composite rising to a record, after China's central bank said over the weekend that it will lift the reserve requirement ratio for bank loans by 0.5 percentage points, in effect a tightening of monetary policy.

In Europe, U.K., German and French markets all advanced. See and .

By Nick Godt