S&P dips after data but Merck lifts Dow

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks were mostly lower in choppy trade on Monday as the latest data on manufacturing continued to paint a mixed picture on the strength of the economy.

The S&P 500 fluctuated between losses and gains but the Dow managed to post a slight gain, boosted by a 5.3 percent jump in Merck & Co Inc .

"We are at all-time highs and the data is not supporting the all-time highs. There is a realization that unless things start to turn around we could be in for a little bit of a correction," said Ken Polcari, director of the NYSE floor division at O'Neil Securities in New York.

"You won't get a 10 or 15 percent correction because the Fed won't let that happen, but pulling back to 1,600 is really not that big a deal."

U.S. manufacturing activity contracted in May to its lowest level since June 2009, but a separate report showed construction spending rose slightly in April.

Trading has been volatile for the past week, with intraday swings of 1 percent up or down, on concerns that the Fed may reduce its monetary stimulus earlier than expected.

The Dow Jones industrial average rose 55.00 points, or 0.36 percent, at 15,170.57. The Standard & Poor's 500 Index lost 3.12 points, or 0.19 percent, at 1,627.62. The Nasdaq Composite Index declined 26.69 points, or 0.77 percent, at 3,429.22.

A popular options gauge that measures the level of anxiety in the market also showed a jump. The CBOE Volatility index VIX was up more than 6 percent at 17.32.

In a week of heavy data, the most important will be the May nonfarm payrolls report, scheduled for Friday. Reuters' survey of analysts shows an expected 170,000 jobs added, slightly higher than the previous 165,000. The Fed's Beige Book survey of regional economic conditions is on tap for Wednesday.

Merck shares were the top boost to the Dow after the company's drug designed to unmask tumor cells and mobilize the immune system into fighting cancer helped shrink tumors in 38 percent of patients with advanced melanoma in an early-stage study. The PHLX drug sector index advanced 1 percent.

But F5 Networks Inc was the worst performer on both the S&P 500 and Nasdaq 100 indexes, down 6.7 percent to $78.64 after Morgan Stanley downgraded the network gear maker to "equal weight" from "overweight".

(Reporting by Chuck Mikolajczak; Editing by Nick Zieminski)