NEW YORK (CNNfn) - The Dow Jones industrial average rose Monday as investors cheered signs that the sluggish U.S. economy may improve in the final six months of the year.
In the latest evidence that the Federal Reserve's six interest rate cuts may be taking hold, a closely watched survey on manufacturing rose to its highest levels of the year. Separately, both consumer and construction spending rose in May.
3M, whose profit warning initially made it the worst performer among the Dow industrials, became among the index's biggest gainers by the close.
"I think there's a feeling that the Fed's actions are going to work," Charles Pradilla, chief investment strategist at SG Cowen, told CNNfn's Street Sweep. "So it's not if, it's when."
But technology stocks lagged blue chips Monday, the first trading day of the third quarter. The Nasdaq composite index broke a five-session win streak.
Twenty-four of the Dow's 30 stocks rose, sending the index up 91.25 points, or 0.9 percent, to 10,593.72. The Nasdaq composite index shed 11.82, or 0.6 percent, to 2,148.72, its first loss since June 22. The S&P 500 gained 12.31, or 1 percent, to 1,236.71.
Market breadth was mixed. On the New York Stock Exchange, advancing issues topped declining ones 1,592 to 1,481 as 1.1 billion shares changed hands. Nasdaq losers beat winners 2,220 to 1,571 as 1.4 billion shares traded.
In other markets, dollar rose against the euro and fell versus the yen. Treasury securities gained
Blue chips rise
The first day of the second half of the year started lower. But that changed after the National Association of Purchasing Management said its index of manufacturing activity rose to a seven-month high of 44.7 percent in June.
Other data on the economy pointed to stability. U.S. consumer spending rose 0.5 percent in May while income edged up 0.2 percent. And construction spending advanced 0.3 percent in May, the government said.
Tuesday marks the six-month anniversary of the Federal Reserve's first interest rate cut since 1998. After Jan. 3, the central bank went on to lower borrowing costs five times, most recently last week.
The day's data suggest that lower rates are at least keeping the economy from faring worse.
"Economic numbers are viewed as the Fed's rate cuts starting to take effect," Nick Angiletta, global head of trading with Salomon Smith Barney, told CNNfn's The Money Gang. "I think people feel good about the second half" of the year.
One sign of optimism came from 3M (MMM: down $0.43 to $116.83, Research, Estimates), whose shares rose nearly 3 percent, even after the company said it expects second-quarter and full-year profits to fall below expectations. The maker of Post-it Notes and Scotch Tape blamed a weakening U.S. economy and the strong dollar, which can hurt profits converted from other currencies.
The day's advancers spanned many industries. Dow components Caterpillar (CAT: up $0.03 to $51.99, Research, Estimates), Johnson & Johnson (JNJ: down $0.15 to $51.04, Research, Estimates), J.P. Morgan Chase (JPM: up $0.19 to $45.65, Research, Estimates), and Home Depot (HD: up $0.19 to $47.89, Research, Estimates) all rose.
"There seems to be those who believe that there are more and more signs that the economy is shaking off its slump," said Alan Ackerman, senior vice president at Fahnestock & Co.
US Airways Group (U: down $2.49 to $18.40, Research, Estimates) fell more than 14 percent. United Airlines is dropping plans to buy the No. 6 airline for $4.3 billion, according to a source, who blame regulatory opposition to the plan.
The unraveling deal came after General Electric (GE: down $0.69 to $49.51, Research, Estimates) signaled Friday that its planned purchase of Honeywell (HON: up $0.99 to $35.10, Research, Estimates) also is all but dead.
Monster of a deal
Other deals appeared more promising. HotJobs.com (HOTJ: up $0.08 to $12.57, Research, Estimates) rallied after TMP Worldwide (TMPW: up $0.42 to $58.94, Research, Estimates), the parent of rival Monster.com, said it will buy the online recruitment firm in a deal worth approximately $460 million.
Earthgrains (EGR: up $0.04 to $39.86, Research, Estimates) also surged after Sara Lee (SLE: unchanged at $19.49, Research, Estimates) said it plans to buy the nation's second-largest packaged bread and bakery manufacturer in a $2.8 billion deal.
The Nasdaq Stock Market suffered trading problems Friday, and the effects were still being felt as the No. 2 stock market repriced several dozen shares Monday. A network test took down two major trading systems, interrupting activity late last week.
Hit by slowing corporate profits, the major stock indexes all fell during the first six months of 2001. Investors are hoping for some recovery in the second half.
But David Beard, portfolio manager at Morgens Waterfall Vintiadis, forecasts at choppy market in the short term.
"I think we've anticipated that the economy's not getting worse," Beard told CNNfn's Before Hours. "But in order to see the next leg up, we need to see a significant upturn in (2002 profit) numbers."
That could take awhile. First Call, which tracks analysts' earnings forecasts, does not expects rising corporate profits until the fourth quarter this year.
The week brings only three full trading sessions. U.S. markets close at 1 p.m. ET Tuesday ahead of Wednesday's Independence Day holiday. 
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