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U.S. Stocks Slide as Factory Contraction Outweighs Upbeat Chinese Data

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12/03/2012 | 08:14pm CEST

--Stocks reverse gains after manufacturing data

--ISM's PMI declines to 49.5, contraction territory; 51 reading was expected

--Materials and industrials shares swoon

    By Matt Jarzemsky 

NEW YORK--Materials and industrial shares recently led U.S. stock benchmarks lower after a weak reading on U.S. factory activity outweighing upbeat Chinese manufacturing data.

The Dow Jones Industrial Average fell 49 points, or 0.4%, to 12976 in midafternoon trading Monday. The Standard & Poor's 500-stock index slid five points, or 0.4%, to 1411. The Nasdaq Composite Index dropped five points, or 0.2%, to 3005.

The Dow reversed earlier gains of as much as 62 points after the Institute for Supply Management reported its purchasing managers index fell to 49.5 last month from 51.7 in October. Economists had expected a slight decline to 51. Readings below 50 indicate contracting activity.

"You have your first piece of negative data this week, which was the factory reading," said Kent Engelke, chief economic strategist at Capitol Securities, which oversees $4 billion in Richmond, Va. "I would argue this negative data is going to accelerate throughout the week. Companies are sitting on their hands because of the 'fiscal cliff.'"

Construction spending increased by 1.4% in October, a much larger gain from September than the expected increase of 0.5%.

European markets were broadly higher. The Stoxx Europe 600 was up 0.1% as Greece's plan to reduce its debt burden helped bolster investors' confidence. Euro-zone manufacturing contracted in November, but at a slower pace than during the previous month, indicating that the worst of the slowdown could be over.

Greece's debt agency announced plans to repurchase up to EUR10 billion ($12.98 billion) worth of its outstanding debt, sending the country's bonds and stock market higher. The Greek ASE Composite ran up 1.1%.

Asian markets rose after encouraging data on China's manufacturing sector. The Chinese government's official purchasing managers index for November rose to a seven-month high of 50.6, up from 50.2 in October. HSBC's PMI for November rose to 50.5 from October's 49.5.

Japan's Nikkei Stock Average edged up 0.1% to a seven-month high and Australia's S&P/ASX 200 gained 0.6% to a six-week high, while China's Shanghai Composite bucked the trend by shedding 1% to a near-four-year low.

Front-month crude-oil futures slipped 0.1% to $88.80 a barrel, while December gold futures rose 0.4% to $1,720.30 a troy ounce. The dollar lost ground against both the euro and the yen. The benchmark 10-year U.S. Treasury note's yield rose to 1.639% as prices fell.

In the corporate arena, shares of SuperValu jumped 11% after news that private-equity firm Cerberus Capital Management is willing to pursue multiple options for a deal with the grocer, including purchasing the entire business.

J.C. Penney fell 3% after Piper Jaffray analysts forecast the department store chain's same-store sales will fall 32% in the fourth quarter. The company's top line has struggled as Chief Executive Ron Johnson attempts to limit promotions in favor of everyday low prices.

Dell rallied 4.4% after analysts at Goldman Sachs raised their investment rating on the personal computer maker to "buy" from "hold" and raised the bank's 12-month price target to $13 from $9.

Deckers Outdoor gained 7.6% after Sterne Agee analysts raised their rating on the maker of UGG boots to "buy" from "neutral." The stock has rallied more than 40% since closing at a three-year low in October, as investors bet an improved product lineup will bolster profits.

HCA Holdings rose 0.8% after it announced plans to pay a special cash dividend of $2 a share, joining a host of companies making one-time payouts ahead of a potential increase in dividend taxes. The hospital operator said it plans to sell $1 billion in debt to finance the offering.

Write to Matt Jarzemsky at matthew.jarzemsky@dowjones.com

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