Wall Street up on data, regulatory plan, but down for quarter

NEW YORK (Reuters) - U.S. stocks gained on Monday as a report showing stronger-than-expected Midwestern business activity eased worries about the economy and a plan for regulatory overhaul raised hopes for calmer financial markets.

Even though the market posted gains on the last day of the first quarter, it had its worst quarterly performance in 5-1/2 years with the U.S. economy showing signs of tipping into recession as the worsening credit crisis claimed ever-larger victims. On the month, the broader market posted its fifth monthly loss.

In after-hours trade, Lehman Brothers Holdings Inc stirred fresh worries about financial stocks when the Wall Street investment bank unveiled a plan to raise as much as $3 billion in capital to bolster its balance sheet. After the closing bell, Lehman's stock dropped 6.3 percent to $35.26 from its NYSE close at $37.64.

During the regular session, a key barometer of manufacturing growth offered a glimmer of hope after a steady diet of dismal economic news. The National Association of Purchasing Management-Chicago index, also known as the Chicago PMI, showed business activity in the Midwest was still shrinking, but the data was not as bad as some had feared.

A plan to revamp U.S. market regulation, unveiled by Treasury Secretary Henry Paulson, also brought a measure of optimism as it signaled the government was addressing issues that led to the current turmoil.

Industrial and telecommunications stocks led the advance, with conglomerate General Electric Co rising 1.1 percent to $37.01. Financials also gained, with an S&P index of financial shares up 0.9 percent.

"It is a function of the last day and window dressing, but it is being buttressed by the sense that there's going to be this massive realignment of regulation for the markets, which I think most participants would agree is long overdue," said Peter Kenny, managing director at Knight Equity Markets in Jersey City in New Jersey.

The Dow Jones industrial average rose 46.49 points, or 0.38 percent, to end at 12,262.89. The Standard & Poor's 500 Index advanced 7.48 points, or 0.57 percent, to 1,322.70. The Nasdaq Composite Index climbed 17.92 points, or 0.79 percent, to close at 2,279.10.

Window dressing happens at the end of the quarter when portfolio managers buy the market's winning stocks to spruce up their books before meeting with their clients.

DISMAL QUARTER

The S&P 500 posted its fifth straight month of losses, the longest monthly losing streak for the index since 1990, while the Nasdaq snapped a four-month losing run. The Dow also marked five months of losses, its longest down streak in 5-1/2 years.

For the month of March, the Dow dipped 0.03 percent and the S&P 500 slipped 0.6 percent, but the Nasdaq edged up 0.3 percent.

For the first quarter, the Dow fell 7.6 percent, the S&P 500 was down 9.9 percent and the Nasdaq lost 14.1 percent.

For all three benchmarks, it was the worst quarterly performance since the third quarter of 2002.

Google Inc, down 36.3 percent for the first three months of the year, had its worst quarterly slide ever.

On Monday, however, Google's stock gained 0.6 percent, or $2.39, to close at $440.47 on the Nasdaq.

GILEAD GAINS, MERCK FALLS

AT&T Inc (T.N), the top U.S. phone company, climbed 1.7 percent on Monday to $38.30 after news that it had won a five-year contract worth about $1.6 billion to provide communications and technology services to Royal Dutch Shell Plc.

Shares of U.S. biotechnology company Gilead Sciences Inc helped boost the Nasdaq. Gilead, whose products include drugs to treat HIV and AIDS, rose 3.9 percent to $51.53 after Lazard raised its price target on the stock to $55 from $50.

Among the major decliners in the S&P 500 were drug makers Schering Plough Corp and Merck & Co. The shares tumbled after an expert panel recommended patients try a generic statin to lower cholesterol before using the two companies' jointly developed medicines, Vytorin and Zetia.

Shares of Merck, also Dow component, slid 14.7 percent to $37.95. It was the heaviest weight on the Dow average and limited its advance. It also topped the S&P 500's list of biggest decliners.

Schering's stock sank 26 percent to $14.41. Lehman Brothers cut its price target on Merck and downgraded Schering. Schering ranked second among the biggest drags on the S&P 500.

Volume was moderate on the New York Stock Exchange, where about 1.58 billion shares changed hands, below last year's estimated daily average of 1.90 billion. On the Nasdaq, about 1.82 billion shares traded, below last year's daily average of 2.17 billion.

Advancers outnumbered decliners on the NYSE by a ratio of about 5 to 3, while on the Nasdaq, about seven stocks rose for every five that fell.

(Editing by Jan Paschal)