INSTANT VIEW: ISM, construction, pending home sales all strong

NEW YORK (Reuters) - A trio of economic reports showed the economy continues to rebuild itself. The U.S. manufacturing sector has now grown for three consecutive months, according to the Institute for Supply Management, which tracks nationwide factory sentiment.

KEY POINTS: * The U.S. manufacturing sector grew in October for the third consecutive month and at a faster rate than was expected, according to an industry report released on Monday. * The Institute for Supply Management said its index of national factory activity rose to 55.7 in October from 52.6 in September. The median forecast of 74 economists surveyed by Reuters was for a reading of 53. * The October reading was the highest since 56.0 in April 2006. A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion.

PENDING HOME SALES:

Pending sales of previously owned U.S. homes unexpectedly rose in September to their highest level in nearly three years ahead of the expiration of a popular tax credit for first-time buyers, a survey showed on Monday.

KEY POINTS: * The National Association of Realtors said its Pending Home Sales Index, based on contracts signed in September, rose 6.1 percent 110.1 -- the highest level since December 2006. It was the eighth straight monthly rise in the index, the longest streak since the measurement started in 2001. * Analysts polled by Reuters had forecast pending home sales, which lead existing home sales by one to two months, to be flat in September after rising to 103.8 in August.

CONSTRUCTION SPENDING:

U.S. construction spending made its largest gain in a year in September, the Commerce Department said on Monday, bolstered by a record pace in public construction and the biggest increase in private residential building in more than six years.

KEY POINTS: * The Commerce Department said spending on construction projects rose 0.8 percent to $940.3 billion, after dropping 0.1 percent in August. Spending originally was reported as rising 0.8 percent in August. * Analysts polled by Reuters had expected spending to fall 0.2 percent. Public construction, fueled by billions of dollars of capital works spending in the U.S. economic stimulus plan, rose 1.3 percent to $326.4 billion, an all-time high, after falling 1.1 percent in August * Home building rose 3.9 percent, its largest gain since rising 4.2 percent in July 2003, in a sign that strength may be returning to the devastated housing market. The prior month's increase was revised down to 3.8 percent from the previously reported 4.7 percent.

COMMENTS:

NICK KALIVAS, VICE PRESIDENT OF FINANCIAL RESEARCH & SENIOR

EQUITY INDEX ANALYST, MF GLOBAL, CHICAGO:

"The data was very much on the better side of expectations.

"What stands out was the fact the employment index in the ISM number was able to work itself above 50. There's been ramblings in the market about better temporary hirings, and this will probably fuel that to a new level.

"The pending home sales being up 6 percent was pretty shocking.

"The National Association of Home Builders survey actually dipped in October and there's been a lot talk of seasonal slowdown, so it appears people looking for bargains on foreclosures is continuing to go onward and that's helping clear out the housing market slowly but surely."

PETER BOOCKVAR, EQUITY STRATEGIST, MILLER TABAK + CO.

"The Oct ISM manufacturing was a better than expected and it's at the highest level since April 2006. But the ISM is a measure of the direction of improvement, not the degree. So don't extrapolate that we're partying like its April 2006 but we are certainly better off than April 2009. New orders fell more than 2 percentage points and backlogs were flat but production rose to the highest since July 2004 and inventories at the manufacturing level rose to the highest since August 2008. The inventory build is the basis for the rebound in the economy and manufacturing will lead the way. Customer inventories though were down a touch."

CHRIS RUPKEY, CHIEF FINANCIAL ECONOMIST, BANK OF

TOKYO-MITSUBISHI, NEW YORK:

"The consumer is buying again, and companies are starting to catch up to this trend a little late. Production will have to run overtime for a while as the low levels of inventory stock was prepared for a sluggish recovery. Time will tell whether we will have a V-shaped recovery or not, but the data today do tend to rule out a W-shaped recovery or new recession.

Manufacturing has fully shaken off the financial market blow struck by the Lehman bankruptcy last fall."

THOMAS NYHEIM, VICE PRESIDENT AND PORTFOLIO MANAGER, CHRISTIANA

BANK & TRUST CO., GREENVILLE, DELAWARE:

"All the numbers show stabilization and the start of some expansion. That's a continuation of what we've been seeing for the past couple of months. We've been looking to see consolidation toward the end of the year, and we still expect that, but all three of these numbers confirm that there is stabilization and an improving economy.

"The market is taking the positive and trading up on it. All the market move today is from the data. If people wanted to sell, they would've already sold by now."

JAY MUELLER, SENIOR PORTFOLIO MANAGER, WELLS CAPITAL

MANAGEMENT, MILWAUKEE, WISCONSIN:

"Overall I would say that the economic downturn was very, very severe. I don't find it at all surprising that a diffusion index like this will show numbers above 50 when you are climbing out of a very deep hole.

"In 2002 the ISM index climbed above 50 for several months and then it slid back."

"We needed to go north of 50 and we needed to stay there, but nothing I see in this changes my mind that it is going to be a pretty sluggish recovery."

"The best thing I can say is that it looks like the employment number got much better. However, I will believe it when I see it."

"Pending home sales got a nice bump. The homebuyers credit obviously has been a factor. We have had an absolutely catastrophic housing market the past couple of years and the numbers can look very encouraging, but you are coming off a very low base."

HUGH JOHNSON, CHIEF INVESTMENT OFFICER, JOHNSON ILLINGTON

ADVISORS, ALBANY, NEW YORK:

ISM: "This is, on balance, a good report, it tells us that the manufacturing sector of the economy is expanding, and perhaps somewhat stronger than expected. But, as you might expect, it indicates that there is upward pressure on prices. So we have a manufacturing sector that is expanding with upward pressure on prices and that is likely to put some pressure on the Federal Reserve to consider removing liquidity from the system. It's a little bit troubling to see supplier deliveries decline; supplier deliveries are a component of the index of leading economic indicators, suggesting that there may be weakness in the month ahead. But nevertheless, this is a good report, but the good news on manufacturing is accompanied by not good news on inflation. So not bad, could be better."

MARK VITNER, SENIOR ECONOMIST, WELLS FARGO SECURITIES,

CHARLOTTE, NORTH CAROLINA:

"It's surprisingly robust. It's strong across the board. It looks like manufacturing is coming back. But it might not mean that much to the Fed. For the most part, this confirms what it has been saying.

MARKET REACTION: STOCKS: U.S. stock indexes jumped. BONDS: U.S. Treasury debt prices added to losses. DOLLAR: U.S. dollar fell against the euro, rose against the yen.