NEW YORK (AP) — The stock market was mostly lower in midday trading after an industry group reported an unexpected slowdown in U.S. manufacturing last month.
The Standard & Poor's 500 index edged down three points to 1,627 shortly after noon Monday, a loss of 0.2 percent.
Most other market indexes also fell except for the Dow Jones industrial average, which was up 42 points at 15,158, a gain of 0.3 percent. The Dow got a boost from Merck, which shot up 5 percent after reporting encouraging results from a clinical trial for a skin-cancer treatment.
Even though stocks closed May higher, signs that this year's rally have started to falter are starting to emerge. The Standard & Poor's 500 index closed higher for a seventh straight month, but the index also logged its first back-to-back weekly declines since November. On Friday the Dow plunged 208 points, its worst drop in six weeks.
The Institute for Supply Management May index reported that U.S. manufacturing decreased last month for the first time since November. Its index measuring the manufacturing sector was the lowest since June 2009.
The yield on the 10-year Treasury note fell to 2.09 percent. It was trading at 2.17 percent shortly before the survey was released at 10 a.m.
The drop in the yield means investors shifted money into U.S. government bonds in anticipation of slightly weaker U.S. economic growth. Investors tend to buy bonds when they want relatively safe assets that are less likely to lose value if the economy slows.
The weakening outlook for manufacturing will be good for investors who are keen for the Federal Reserve is keep up its $85 billion a month of bond purchases. Speculation that central bank was set to ease that stimulus, a major support for this year's rally in stocks, has caused stock trading to become volatile in the last two weeks.
"This negates some of the fears that the Fed is going to do something in the next six to eight months," said Peter Cardillo, chief market economist at Rockwell Global Capital. "It's bad news which is good."
The yield on the 10-year Treasury note, which is used to set interest rates on many kinds of loans including home mortgages, is about half a percentage point higher than it was at the start of the last month and is at its highest in more than two years.
As Treasury yields fell, rich dividend-paying stocks like power and phone companies and the makers of consumer staples moved higher, reversing early losses. Those three sectors, so-called defensive stocks, had been investor favorites in the first quarter but declined in May as bond yields rose.
In other trading, the Nasdaq composite fell 27 points, or 0.8 percent, to 3,429. The Russell 2000 of small-company stocks was down six points, or 0.6 percent, at 978.
In commodities trading, oil climbed $1.50, or 1.6 percent, to $93.50 a barrel. Gold rose $21, or 1.5 percent, to $1,414 an ounce. The dollar fell against the euro and against the Japanese yen. The U.S. currency dropped back below 100 yen.
Among stocks making moves:
Merck led the Dow higher after news crossed that the drugmaker announced encouraging clinical results for a medicine to treat skin cancer. Merck rose $2.31, or 5 percent, to $49.03.
Cracker Barrel Old Country Store rose $4.59, or 5.2 percent, or $94.14 after the restaurant operator said its fiscal third-quarter profit rose 30 percent as higher prices on its menus helped increase its sales.
Centene fell 3 percent after the Medicaid coverage provider said a Kentucky court ruled that it cannot prematurely end a contract that has generated steep losses. The stock lost $1.47 to $48.03.
