RTTNews - After rallying into the close in the previous session, stocks are showing significant strength in mid-morning trading on Monday. The major averages are all firmly in positive territory, looking to extend their gains for a third straight session as traders digest encouraging 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.

The report 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.

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 report showed 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.

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.

On the corporate front, auto giant General Motors (GM) 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 8.

The major averages have moved roughly sideways in recent trading, hovering near their best levels of the day. The Dow is currently up 194.90 at 8,695.23, the Nasdaq is up 46.31 at 1,820.64 and the S&P 500 is up 22.07 at 941.21.

Sector News

Most of the major sectors are showing substantial strength in mid-morning dealing, helping the major averages to surge higher on the day.

Healthcare provider stocks are turning in some of the day's best performances, with the Morgan Stanley Healthcare Provider Index up by 4.5 percent. The strong gain has lifted the index to its best intraday level in eight months.

The sector is benefiting from an upgrade from Deutsche Bank, which raised its rating on the sector to Positive from Neutral. Deutsche Bank said traditional fundamental investors may become drawn to the sector based on the secular theme of health care reform

Shares of Tenet Healthcare (THC) and Healthcare Management Associates (HMA) have stood out in morning dealing, rising by 10.2 percent and 7.1 percent, respectively.

A variety of other sectors have also shown strong upward moves, reflecting broad based strength in the markets. Significant strength is visible among steel, transportation, semiconductor and energy.

Stocks Driven By Analyst Comments

Shares of Yahoo (YHOO) are seeing notable upside after the firm was upgraded to Overweight from Equal Weight by Barclays Capital. The firm cited Yahoo's positioning to benefit from a boost in advertising in the near future. Yahoo is up by 2.6 percent after reaching an eight-month intraday high.

Abercrombie and Fitch (ANF) is also on the rise after being upgraded to Outperform from Market Perform by FBR Capital, which cited the apparel retailer's increased consumer traffic. The firm's stock is up by 6.2 percent in mid-morning dealing, climbing to its best intra-day level in nearly eight months.

On the other hand, shares of OSI Pharmaceuticals (OSIP) are down by 6.3 percent following a downgrade by Thomas Weisel to Market Weight from Overweight. With the retreat, the stock has tested its worst intraday price in nearly seventeen months.

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 are also seeing significant strength. The French CAC 40 Index and the German DAX Index are up by 3.0 percent and 4.0 percent, respectively, while the U.K.'s FTSE 100 Index is also on the rise, climbing by 2.2 percent.

In the bond markets, treasuries are plunging, giving back most of the gains posted in the previous session. Subsequently, the yield on the benchmark ten-year note is trading at 3.649 percent, a climb of 18.4 basis points on the day.

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