RTTNews - Following a strong open, stocks are extending their gains in early afternoon trading on Monday. The major averages are all hovering firmly in positive territory, boosted early by trader reaction to unexpectedly upbeat economic data.

While the Institute for Supply Management released a report showing that activity in the manufacturing sector contracted for the sixteenth consecutive month in May, the pace of contraction slowed by more than economists had been expecting.

Additionally, construction spending unexpectedly increased in the month of April, according to a report released by the Commerce Department, with the unexpected growth reflecting a notable increase in spending on private construction.

The Commerce Department also released a separate report showing that personal income unexpectedly rose in the month of April, with the increase partly due to the reduced taxes and increased social benefit payments associated with the government's economic stimulus plan.

Traders are also digesting remarks from President Barack Obama on the embattled U.S. auto industry following the bankruptcy filing of General Motors (GM) this morning.

In his comments, Obama noted that the U.S. government has no interest in running General Motors and said the goal is to get out of GM ownership as quickly as possible.

While buying interest has waned from earlier in the session, the major averages are currently holding onto substantial gains. The Dow is currently up 217.04 at 8,717.37, the Nasdaq is up 51.87 at 1,826.20, and the S&P 500 is up 24.43 at 943.57.

Sector News

Most of the major sectors are continue to show considerable strength in afternoon dealing, helping the major averages to extend their sizable gains.

Steel stocks are surging on the day, as reflected by the 7.8 percent gain currently being shown by the Amex Steel Index. With the advance, the index has added to its recent gains to reach its best intra-day level in eight months.

Commercial real estate stocks are also on the rise, with the Morgan Stanley Real Estate Index climbing by 6.9 percent on the session, rising to its best intraday level in almost five months.

Notable strength is also visible among retail, transportation, healthcare provider, and semiconductor stocks, further bolstering the major averages.

Despite the broad based gains, some gold stocks are moving to the downside, with the Amex Gold Bugs Index retreating by 0.3 percent.

Stocks in the News

Ethan Allen Interiors (ETH) is rising after the firm entered a 3-year senior secured $40 million credit facility provided by JP Morgan Chase (JPM). Shares of Ethan Allen are up by 7.9 percent in afternoon trading, offsetting some of May's losses to reach a three-week intraday high.

Shares of Deere (DE) are also seeing some upside after traders cheered the election of Samuel Allen as president, chief operating officer, and a member of the board of directors effective June 1st, and chief executive officer effective August 1st. The firm's stock is up by 8.5 percent, moving to the upper end of a recent trading range, looking to challenge its best levels of the year.

Meanwhile, shares of Prudential (PRU) are sliding after the firm commenced a public offering of $1.25 billion of its common stock. The stock has fallen 2.7 percent on trader concern over share dilution, but it remains in a tight trading range after reaching its best level of the year early last month.

In Focus: Economic Data, GM Bankruptcy, Geithner in China

A report from the Institute for Supply Management showed that the index of activity in the manufacturing sector rose to 42.8 in May from 40.1 in April, with a reading below 50 indicating a contraction. Economists had been expecting the index to edge up to a reading of 42.0.

A turnaround in new orders contributed to the improvement in the sector, with the new orders index climbing to 51.1 in May from 47.2 in April. This marked the first time the index has been above 50 since November of 2007.

Data from the U.S. Commerce Department said that construction spending increased by 0.8 percent to an annual rate of $968.7 billion in April following a revised 0.4 percent increase in March. Economists had expected spending to decrease by about 0.8 percent.

Meanwhile, in a separate report, the Commerce Department said that personal income increased by 0.5 percent in April following a revised 0.2 percent decrease in March. The increase surprised economists, who had expected income to fall by 0.2 percent compared to the 0.3 percent decrease originally reported for the previous month.

The data also revealed that personal spending edged down 0.1 percent in April after falling by a revised 0.3 percent in the previous month. Economists had expected the drop in personal spending to match the 0.2 percent decrease originally reported for March.

On the corporate front, auto giant General Motors officially filed for bankruptcy this morning. The Obama administration said Sunday that it has deemed GM's reorganization plan viable and will provide the company $30.1 billion in debtor-in-possession financing.

Subsequently, Dow Jones revealed that GM would be removed from the Dow Jones Industrial Average along with Citigroup (C), with Cisco (CSCO) and Travelers (TRV) to take the place of the troubled firms. Both changes will be effective with the opening of trading on Monday, June 8th.

Meanwhile, speaking at Peking University in Beijing, Treasury Secretary Tim Geithner assured China that their hold in U.S. government debt, which is the biggest in the world, is safe due to the fact that the U.S. is committed to paying down the debt as soon as the economy is on a firm path toward recovery.

China is America's biggest creditor with an estimated $770 billion invested in U.S. treasury bonds.

Other Markets

Stocks markets across the Asia-Pacific region soared on Monday. Japan's benchmark Nikkei 225 Index rose by 1.6 percent, while China's Hang Seng climbed 3.4 percent.

The major European markets also closed considerably higher. The French CAC 40 Index and the German DAX Index finished up by 3.1 percent and 4.1 percent, respectively, while the U.K.'s FTSE 100 Index also enjoyed notable strength, closing up by 2.0 percent.

In the bond markets, treasuries are continuing their freefall, giving back most of the gains posted in the previous session. Subsequently, the yield on the benchmark ten-year note is trading at 3.692 percent, a climb of 22.7 basis points on the day.

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