WRAPUP 2-U.S. manufacturing slows, while construction rises

* July manufacturing shrinks, but by less than forecast

* Construction spending rises unexpectedly in June

* Ford sales add to the positive economic tone
(Adds auto sales data in paragraphs 9-10, updates late market
moves in paragraphs 6-7)

By Chris Reese

NEW YORK, Aug 3 (Reuters) - U.S. manufacturing contracted
at a much slower pace in July, while construction spending rose
unexpectedly in June, according to data released on Monday that
bolstered the view the economy was pulling out of recession.

The Institute for Supply Management said its index of
national factory activity rose to 48.9 in July from 44.8 in
June, bringing the index much closer to the 50 reading that
separates contraction from expansion.

The ISM index has not been above 50 since January 2008.

The July reading also was the highest since August 2008,
and higher than the median forecast of 46.2 predicted by a
Reuters survey of 72 economists.

U.S. construction spending rose 0.3 percent in June, with
spending for public buildings reaching a record high, after
dropping 0.8 percent in May, the Commerce Department said.
Analysts polled by Reuters had forecast construction spending
to fall 0.5 percent.

Analysts said the manufacturing and construction spending
data was further evidence that the economic decline may be
slowing, and stocks climbed more than 1 percent while prices of
Treasuries slumped.

The dollar fell to a 10-month low against a basket of
currencies as investors felt more comfortable turning to
riskier, higher-yielding assets.

"It's another data point showing that the economy is
starting to bottom out here, and perhaps the worst is behind
us," said David Dietze, chief investment strategist at Point
View Financial Services in Summit, New Jersey.

Adding to the positive tone on Monday, Ford Motor Co (F.N)
said its U.S. auto sales rose 2.3 percent in July, marking the
first year-over-year monthly sales increase since November
2007.

The news was not as good for Chrysler Group LLC, which
reported July U.S. sales fell 9 percent from a year ago, or
General Motors Co, which said U.S. sales last month fell by
19.4 percent from a year earlier.

EMPLOYMENT INDEX RISES

The ISM manufacturing prices paid index climbed to 55.0 in
July, its highest since August 2008, from 50.0 in June, while
the employment index rose to 45.6, also the highest since
August, from 40.7 in June.

The U.S. manufacturing new orders index climbed to 55.3,
the highest since July 2007, from 49.2 in June.

Within the construction spending data, public construction
rose by 1.0 percent to $321.75 billion in June, which was the
highest on record.

It was the fifth month in a row that public construction,
which makes up a third of total U.S. construction spending,
made gains.

And while private construction dropped for the second month
in a row, by 0.1 percent, private residential building, which
makes up a quarter of construction spending and has been
clobbered in the recession, rose 0.5 percent to $246.07 billion
in June.

"For construction spending, all the signs are there that
we've pulled back and that we are on the verge of growing
again," said Jim Awad, managing director at Zephyr Management
in New York.
(Additional reporting by Lisa Lambert in Washington and Mary
Angela Rowe and Ryan Vlastelica in New York; Editing by Kenneth
Barry)