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 one point to 1,629 as of 2 p.m. Monday, a loss of 0.1 percent.
Most other market indexes also fell except for the Dow Jones industrial average, which was up 54 points at 15,158, a gain of 0.4 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.
The Institute for Supply Management 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. Investors had expected an increase.
Some investors are betting that if the economy weakens the Federal Reserve will keep up its $85 billion a month in bond purchases. Speculation that the central bank was set to ease that stimulus, a major support for this year's rally in stocks, has caused trading to become volatile in the last two weeks.
The "good news is bad news" interpretation of economic reports may support stocks in the short-term, but at the end of the day the economy has to keep improving for stocks to reach new highs, Alec Young, a global equity strategist at S&P Capital IQ, said.
"This was a big miss on the ISM report," said Young. "Regardless of what it means for the Fed, ultimately you're buying a stream of earnings and you want to see the economy doing well."
The yield on the 10-year Treasury note fell as low as 2.09 percent from 2.17 immediately after the report was released at 10:00 a.m. In afternoon trading the yield was 2.12 percent.
The decline in the yield suggests that 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 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. It started the day close to its highest in more than two years.
As Treasury yields fell after the ISM report Monday, 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 19 points, or 0.8 percent, to 3,429. The Russell 2000 of small-company stocks was down four points, or 0.6 percent, at 978.
Even though stocks closed higher in May, there are signs that this year's rally may be starting to falter. 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 Dow is still up 15.6 percent this year, and the S&P 500 is 14.1 percent higher. Stocks have surged as companies reported record earnings and on optimism that the housing market is recovering and hiring is improving.
In commodities trading, oil climbed $1.46, or 1.5 percent, to $93.44 a barrel. Gold rose $18.90, or 1.4 percent, to $1,411.90 an ounce. The dollar fell against the euro and against the Japanese yen. The U.S. currency dropped back below 100 yen for the first time in three weeks.
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 $1.91, or 4.1 percent, to $48.61.
Cracker Barrel Old Country Store rose $4.12, or 4.6 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 2.5 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 $1.25 to $48.25.