Wall St ends higher on stimulus views, Merck gains

By Caroline Valetkevitch

NEW YORK (Reuters) - U.S. stocks rose on Monday, helped by weaker-than-expected factory activity that supported views the Federal Reserve will keep economic stimulus in place, while gains in Merck & Co lifted drug companies.

U.S. manufacturing contracted in May to its lowest level since June 2009, according to the Institute for Supply Management, but a separate report showed spending on construction rose slightly in April.

"I think investors are thinking the bigger issue is rapidly rising interest rates because that is what's foremost in their minds," said Bryant Evans, portfolio manager at Cozad Asset Management, in Champaign, Illinois.

Trading was volatile, with all three indexes gaining at the open, the S&P 500 and Nasdaq turning negative in late morning and then positive again before the close.

The S&P consumer staples index, which helped lead recent losses along with sectors of other high-yielding dividend stocks, rose 1.1 percent and was the day's best-performing sector. U.S. bond prices were flat to higher.

Speculation the Fed may reduce its monetary stimulus earlier than expected has pushed stocks down in recent sessions and lifted bond yields.

Merck shares gained 3.7 percent to $48.45 and gave the Dow its biggest boost. 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.

The Dow Jones industrial average was up 138.46 points, or 0.92 percent, at 15,254.03. The Standard & Poor's 500 Index was up 9.68 points, or 0.59 percent, at 1,640.42. The Nasdaq Composite Index was up 9.45 points, or 0.27 percent, at 3,465.37.

Market breadth was more negative than positive, however, with decliners outpacing advancers on the New York Stock Exchange.

In a week of heavy data, the most important will be the May non-farm payrolls report on Friday. Reuters' survey of analysts shows they expect the economy created on average 170,000 jobs, slightly higher than the 165,000 jobs added in April. The Fed's Beige Book survey of regional economic conditions is on tap for Wednesday.

On the Nasdaq, Intel rose 4 percent to $25.24. Samsung Electronics Co said it will use Intel processors to power a new version of one of its top-tier Android tablets. FBR raised its rating on the stock.

F5 Networks Inc was among the day's worst performers, ending down 4.9 percent to $79.16 after Morgan Stanley downgraded the network gear maker.

(Additional reporting by Ryan Vlastelica; Editing by Nick Zieminski and Kenneth Barry)