Recovery Again a Tough Sell on Wall Street

Stocks fall despite the tide of benign data.
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Updated from 11:10 a.m. EST

A string of mostly positive economic reports failed to lift stocks Monday as investors apparently perceived the headline numbers as less than trustworthy. The reports variously depicted a rebound in consumer spending, an improving factory sector and more construction activity.

Stocks finished in red, with the

Dow

down 87.6 points, or 0.9%, to 9763.9 and the

Nasdaq

off by 25.69, or 1.3%, to 1904.89. The

S&P 500

lost 9.55, or 0.8%, to 1129.9.

Enron's

(ENE)

bankruptcy combined with overseas worries to rain on the data parade.

"My sense is that after such a big rally, you have to expect the market to sell off," said Phil Dow, director of equity strategy at Dain Rauscher. The S&P 500 gained 5% in November, while the Nasdaq climbed 10.5%. The Dow Jones Industrial Average is up 6%. "Right now, it's a day where the market wants to seize on negatives," Dow said.

According to the Commerce Department, consumer spending rebounded in October, rising by 2.9%, as spending on cars and other big-ticket items soared. Spending on durable goods, or items meant to last three or more years such as cars and appliances, rose a record 13.8% during in October, as consumers responded to incentives like interest-free financing for automobiles.

The increase in spending was the largest jump since 1959, when the data series began. The October uptick was also greater than the 2.4% gain economists expected, according to a survey by Thomson Global Markets. The same report showed personal income, hit hard by the rash of layoffs since Sept. 11, was flat in October for the second straight month.

Hopes remain that consumer spending will lift the economy out of recession, but experts warned that Monday's reports weren't enough to go on. "We think any signs of economic strength was only a dead cat bounce predicated upon massive discounting and zero percent financing," wrote Kent Engelke, capital markets strategist at Anderson & Strudwick, in his markets commentary. Engelke noted that the latest Beige Book report by the

Federal Reserve

also acknowledged that consumer strength has been supported by promotional events.

Separately, the National Association of Purchasing Management said its factory index rose to 44.5 in November from 39.8 in October. NAPM's production Index rose to 47.1 in November from 40.9 in October, while the new orders Index rose to 48.8 in November from 38.3 in October.

Economists had expected a reading of 42 in the factory index, based on the median of 41 forecasts in a

Bloomberg

survey.

Nevertheless, November's data charts the 16th consecutive decline in the manufacturing sector, as any reading below 50 signals contraction. "

Even with this month's signs of encouragement, it takes time to build a recovery across the sector," said Norbert Ore, chair of the NAPM's survey committee, in a prepared statement. "The trend is definitely in the right direction, but it is too soon to claim an imminent recovery," he said.

Meanwhile, U.S. construction spending rose 1.9% in October, according to Commerce Department. Economists had expected a 0.2% drop for the month. Construction spending in September was revised down to a 0.7% decline from a 0.4% decline.