Stocks set to start month with big gains

[August 02, 2010]  NEW YORK (AP) -- Stocks are set to kick off the new month with a big gain Monday, after strong economic and earnings reports overseas added to hopes a global recovery is picking up pace.

In the U.S. though, signs continue to point to a slowdown in growth. Investors will closely watch a key reading on the manufacturing sector due out later Monday.

The Institute for Supply Management's manufacturing survey is the first major economic report from July and will be closely watched to see if the recent trend of slowing growth continues. During the spring, traders sold shares because of signs the recovery was weakening and fears the economy would fall back into recession. But strong earnings in July helped drive stocks to their best month in a year.

The ISM's manufacturing index likely fell to 54.1 in July from 56.2 in June, according to economists polled by Thomson Reuters. Any number above 50 indicates the sector is growing, so even with a slowdown, manufacturing keeps expanding. That should help reduce fears about a so-called double-dip recession, even if the economy isn't robust. The report is due out at 10 a.m. EDT.

Traders were particularly encouraged Monday about strength overseas. A similar manufacturing report for the 16 countries that use the euro was revised higher for July, showing the continent's economy continues to recover faster than expected.

European markets also jumped after big profit reports from banking giants HSBC and BNP Paribas. Worries about Europe's banks in the face of mounting government debt had spooked investors worldwide for much of the spring, so healthy earnings from them have provided relief that the financial sector is stable.

Asian markets gained after Chinese manufacturing data showed growth at a pace where the government isn't likely to take steps to slow the country's economy. Strong earnings in Japan also helped Monday's global rally.

Ahead of the opening bell, Dow Jones industrial average futures rose 106, or 1 percent, to 10,523. Standard & Poor's 500 index futures rose 12.50, or 1.1 percent, to 1,110.80, while Nasdaq 100 index futures rose 19.75, or 1.1 percent, to 1,882.00.

HSBC shares trading in the U.S. rose $2.73, or 5.3 percent, to $53.81 in pre-opening trading.

Monday's ISM manufacturing report is the first in a line of big economic reports due out this week. ISM reports its service sector index on Wednesday. Retailers report July monthly sales on Thursday. The Labor Department then releases its monthly employment report Friday, which is considered the most important report of the month.

High unemployment remains a major obstacle to a stronger recovery in the U.S. So investors will want to see signs that companies that just reported big earnings for the second quarter are using that money to hire new employees.

With investors jumping back into riskier stocks, bond prices fell Monday. The yield on the 10-year Treasury note, which moves opposite its price, rose to 2.94 percent from 2.91 percent late Friday. Its yield is often used as a benchmark to set interest rates on mortgages and other consumer loans.

Overseas, Britain's FTSE 100 gained 2.1 percent, Germany's DAX index rose 1.7 percent, and France's CAC-40 rose 2.1 percent. Japan's Nikkei stock average rose 0.4 percent and Hong Kong's Hang Seng jumped 1.8 percent.

[Associated Press; By STEPHEN BERNARD]

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