INSTANT VIEW: April ISM index beats expectations

NEW YORK (Reuters) - The U.S. factory sector shrank further in April but at a slower pace, suggesting some stabilization in the battered sector and the broader economy, according to an industry report released on Friday.

U.S. consumers felt more confident about the economy last month than at any time since the September failure of Lehman Brothers that pushed global banking to the brink of collapse, a survey showed on Friday.

KEY POINTS:

ISM: * The Institute for Supply Management said its index of national factory activity rose to 40.1 in April from 36.3 in March. * The median forecast among economists polled by Reuters was 38.0. * A reading below 50 indicates contraction in the manufacturing sector. * ISM said the index has been below this threshold for 15 straight months.

UNIVERSITY OF MICHIGAN: * The Reuters/University of Michigan Surveys of Consumers said its final index of confidence climbed to 65.1 in April from 57.3 in March. * That was the highest since September 2008 and the biggest one-month increase since October 2006. * The April reading also marked the first yearly increase since July 2007. * Economists polled by Reuters expected a slightly lower final reading of 61.9 for April. * The index of current economic conditions rose to 68.3 last month from 63.3 in March, the best reading in four months. * The index of consumer expectations climbed to 63.1 from 53.5, also the highest since September of 2008.

COMMENTS:

JOHN SCHLOEGEL, VICE PRESIDENT, INVESTMENT STRATEGIES, CAPITAL CITIES ASSET MANAGEMENT, AUSTIN, TEXAS:

"Whether it's the ISM or factory orders, you name it, the data is being met with a shrug of the shoulders as more importantly investors try to get a sense of what's six months down the road as opposed to the past reporting period. That is really the game that's being played right now -- just trying to discount end of year 09 or the start of 2010 rather than what just occurred in the month of March or April. "

NORBERT ORE, CHAIR, ISM BUSINESS SURVEY COMMITTEE, ATLANTA, GEORGIA:

"This is the first report that we've seen in quite some time that we can call very encouraging. The highlight is the new orders index. Over the course of the last five months it's up from 23.1 to 47.2 and of course what we've been looking for is the move in new orders. Certainly the trend is in the right direction and some industries are starting to move a little bit. Four industries moved up very strongly in new orders, but there was improvement across the board.

"On top of that, new orders are growing faster than inventories. Last month there was a difference of 9 points, which was a shift from the opposite direction. This month the difference is 13.6. That's the fastest rate of new orders growth versus inventories since December of 2004. That's very encouraging.

"The rate of decline has bottomed for employment which is also positive. We had hit a low of 26.1. Slowly that rate of decline is diminishing. We're still a long way from where we're talking about creating manufacturing jobs, but it looks like the worst is over in terms of rate of reduction.

"While manufacturing is still declining, all of the signs are positive toward a reversal of that decline and much more so than anything we've seen than in the last several months. This is very encouraging. We had a very strong seasonal adjustment this month. The raw data was actually above 50 for new orders. It indicates there's been a lot happening. Four industries reported significant improvement. I would look for that to get better each month.

"It's obvious the business cycle is alive and well and working the way it's supposed to. Typically manufacturing is seen as a leading indicator. We still have a ways to go. New orders can only drive so much. We have to see a big change to get above 50 in the second quarter. In the third quarter, a reading above 50 becomes a more likely event. We have to remember the PMI is still significantly below 50. This doesn't correlate to positive GDP by any means, but it shows we're on the right path."

TERRI BELKAS, CURRENCY STRATEGIST, DAILYFX.COM, NEW YORK:

CONSUMER SENTIMENT: "Overall, it suggests that consumers are obviously feeling a little bit more optimistic about future conditions...The risk there is that if they don't continue to see positive signs of growth later in the year, you're likely to see these sentiment reports start to fall back once again."

ISM: "That was also stronger than expected. With the employment component, we saw a pretty big pick-up there. But every component of this index remains below 50. All these things still signal a contraction, but the contraction just isn't accelerating."

WARREN SIMPSON, MANAGING DIRECTOR, STEPHENS CAPITAL MANAGEMENT, LITTLE ROCK, ARKANSAS:

ISM: "I think that's good. Nothing the matter with that. That doesn't make me completely bullish or bearish on anything but it's certainly not bad. What I like is these inventories getting better. That's not a secret. If inventories get right and then if they get better because of demand that could really jump start the process a little.

"You have to start hiring people, and that can really curb it. If you can just keep these unemployment numbers -- they were a little better this month -- get them below 600,000 next month. As far as new jobs lost, I think you can really see the market bump up pretty good. But do I think the recession is on the way out? We do not. I think it's a long-drawn out process and we are in about the fifth-inning."

KURT KARL, HEAD, ECONOMIC RESEARCH AND CONSULTING, SWISS RE, NEW YORK:

"ISM is up, although it is still contracting. The direction is appropriate, it is what we have been seeing which was contraction at a very rapid rate and now that rate is slowing dramatically.

"The new orders is very positive, it is close to 50, and production is moving in the right direction with less of a contraction. I would say it is a solid, positive report although we have to keep in mind that 40 is contracting at a slower rate -- it is improving but it is headed in the right direction. It means basically that in three months we could be expanding, which is my forecast.

"The funny part about this downturn is that if you didn't have the banking crisis, you would just say that this is a conventional, very severe recession and we are headed toward a sharp recovery but with the headwinds of the banking turmoil it is unlikely that it will be really robust."

DAN GREENHAUS, ANALYST, MILLER TABAK & CO, NEW YORK:

ISM: "The beat was led by a pickup in new orders, which spiked to 47. New orders are a large component.

"The only thing I would note is that moderation in the pace of contraction is entirely to be expected. The question isn't whether we're stabilizing but how fast we're going to grow. This is one of the less worse figures, but that's becoming the general consensus. We have to move beyond moderating and stabilizing and onto when we're going to grow."

MARKET REACTION: STOCKS: U.S. stocks turn positive after data. BONDS: U.S. Treasury debt prices add to losses. DOLLAR: U.S. dollar holds gains versus yen.