Wall Street adds cheer to markets

Leading Wall Street stocks closed at their highest level all year on Monday after an encouraging manufacturing report fanned hopes of an economic recovery.

The markets were given a boost after the Institute for Supply Management (ISM) survey showed the troubled manufacturing industry had slowed its rate of decline by more than expected.

The upbeat tone also helped leading European markets close in positive territory earlier in the day.

"There's growing confidence that the economy is improving," said Rich Nash, chief market strategist at Victory Capital Management.

Racing ahead

The Dow Jones index gained 47 points or 0.5% to close at 8,897, having jumped as much as 150 points and passed the 9,000 level in earlier trading.

Maybe, just maybe, evidence is beginning to stack up to suggest the equity patient is on the mend and can come off the critical list

Bill McQuaker, CSFB

The broader Standard & Poor's index closed up 0.3% at 967, also its highest closing level this year.

The encouraging start had prompted a lift in European markets. London's FTSE 100 index closed up 2% at 4,129 - a fresh six-month high - while in Paris, the Cac also closed up 2% at 3,048. Germany's Dax market ended the day almost 3% higher at 3,065.

"We are at a crossroads where markets are getting over the confidence crisis and war tensions of the past months to concentrate on glimmers of economic recovery," said Robeco Gestion fund manager Yves Maillot in Paris.

Others were more cautious:

"There's no question that it's come very far, very fast," said a First Albany analyst.

"And some might argue it's ahead of itself, or somewhat overvalued and a little bit overdue for a rest."

Off the critical list?

Markets were reacting to the ISM's nationwide manufacturing activity index for May.

It rose 49.4 from April's 45.4 and above expectations for 48.6 - showing further contraction of US manufacturing activity, but at a slower pace than in April.

Many analysts remained wary of such a leap of confidence from the data, warning that the so-called 'confession season' - when companies update investors on whether or not they will be able to meet their forecasts - was now approaching.

There was also a decline in the tech-heavy Nasdaq index in the US, as investors cashed in on six days of gains.

"We are not arguing for a return to the bull market conditions of the 1990s, or anything like it," said CSFB strategist Bill McQuaker.

"However, maybe, just maybe, evidence is beginning to stack up to suggest the equity patient is on the mend and can come off the critical list."