Wall Street Posts Comeback Rally as Data Cool QE Fears

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The markets rebounded after dour performance late last week after a round of weak manufacturing data eased fears that the Federal Reserve will begin paring back its quantitative easing program very soon.

Today's Markets 

The Dow Jones Industrial Average rallied 138 points, or 0.92%, to 15254, the S&P 500 climbed 9.7 points, or 0.59%, to 1640 and the Nasdaq Composite advanced 9.5 points, or 0.27%, to 3465.

The markets ended what was a strong month on a weak note last week. The S&P 500 took its biggest drop in more than a month Friday, but still rose 2.1% for May in its seventh-straight monthly advance.

On Monday, energy and consumer staple stocks fared the best by far. Intel (NASDAQ:INTC) and Merck (NYSE:MRK) gave the Dow a big boost, contributing 20 points combined.

The Federal Reserve's plans to exit its massive bond-buying operation, dubbed QE3, has remained a major focus on Wall Street. The markets are expected to stay fixated on the central bank as several key reports are released on the U.S. economy, capped with the all-important monthly jobs report on Friday.

"Everything investors do this week will be conducted in the shadow of [the May jobs report], as they try to pre-empt the next move from the world’s most powerful central bank," Chris Beauchamp, a market analyst at IG wrote in an e-mail.

The Institute for Supply Management Manufacturing PMI gauge dipped to 49 in May from 50.7 in April, missing estimates that it would hold steady. It was the lowest reading since June 2009, and indicated the sector contracted for the first time since November 2012.

"We can now say with even more confidence that there is literally zero chance the Fed announces any adjustments to its QE program in June and along with the decline in inflation measures, the risks are growing that our September call looks optimistic," Dan Greenhaus, chief global strategist at BTIG, wrote in an e-mail.

Adding to that, Atlanta Fed chief Dennis Lockhart told FOX Business easing QE right now would be "premature." However, he did say that the central bank may begin trimming the bond purchases in coming months if the economy keeps up its momentum.

PMI readings out of China painted a mixed picture for the world's No. 2 economy. The official data showed a shallow increase in the rate at which the manufacturing sector expanded in May, rising to 50.8 from 50.6. However, a separate survey from HSBC showed the sector contracting for the first time in seven months, falling to 49.2 in May from 50.4 in April.

A report from Markit showing the eurozone manufacturing sector deteriorated at the slowest pace in 15 months helped balance out that report. The metric jumped to 48.3 from 46.7. Germany, France and Italy -- the bloc's three biggest economies -- all saw improvements as well.

"Although the euro area manufacturing economy continued to contract in May, it is reassuring to see the rate of decline ease to such a marked extent," Chris Williamson, chief economist at Markit wrote in the report. "The sector still seems some way off stabilising, however, and therefore remains a drag on the economy."

On the corporate front, the Big Three U.S. automakers reported monthly sales figures on the day. Ford (NYSE:F) saw a 14% increase in sales for the month, while Chrysler's sales climbed 11%. Intel (NASDAQ:INTC) shares rallied on the back of an upgrade by FBR.

Apple (NASDAQ:AAPL) will face the U.S. Justice Department in court amid allegation the tech titan conspired to fix e-book pricing.

In commodities markets, oil and gasoline futures were in the green. The benchmark U.S. crude oil contract climbed $1.48, or 1.6%, to $93.45 a barrel. Wholesale New York Harbor gasoline rallied 1.1% to $2.785 a gallon. Gold advanced $18.90, or 1.4%, to $1,412 a troy ounce.

Foreign Markets

The Euro Stoxx 50 rose 0.64% to 2787, the English FTSE 100 dipped 0.11% to 6576 and the German DAX climbed 0.51% to 8391.

In Asia, the Japanese Nikkei 225 plunged 3.7% to 13262 and the Chinese Hang Seng tilted lower by 0.49% to 22282.

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