Stocks inch higher to close out worst quarter since 2002

Stocks closed a dismal first quarter with a moderate gain Monday, rising after a reading on regional manufacturing came in better than expected and as investors examined details of a government plan to overhaul the way Wall Street is regulated.

Even though the market posted gains on the last day of the first quarter, it had its worst quarterly performance in 5½ years with the U.S. economy showing signs of tipping into recession as the worsening credit crisis claimed ever-larger victims.

After a steady diet of dismal economic news, a key barometer of manufacturing growth offered a glimmer of hope. The Chicago Purchasing Managers Index, considered a precursor to the Institute for Supply Management manufacturing survey on Tuesday, rose to 48.2 in March from 44.5 a month earlier.

Economists had been expecting a reading of 47.3, according to Dow Jones Newswires. Though the reading topped forecasts, a figure below 50 nonetheless indicates a contraction in manufacturing activity.

The market's reaction, however, was likely not as enthusiastic as it might seem from gains by the major indexes. Volume was very light, which tends to skew price movements, and the final day of the quarter had some institutions buying more for show rather than on any conviction about the economy.

Investors also examined a government plan to overhaul the way Wall Street is regulated. Wall Street appeared unmoved by a speech from Treasury Secretary Henry Paulson on the plan to reorganize oversight of Wall Street; details of the 218-page plan have been widely reported in recent days. It would give the Federal Reserve increased power to protect the stability of the entire financial system while merging day-to-day supervision of banks into one agency, down from five under the existing system.

Scott Wren, senior equity strategist for A.G. Edwards & Sons, said Monday's trading showed investors were generally awaiting economic data due this week on the manufacturing and service sectors as well as employment. Investors are prepared for weak economic data, he said, but could become unnerved if there is unwelcome corporate news.

"The market is already pricing in a ton of bad economic news. Bad economic news is not going to drive the market. What's going to drive the market is headline news," he said.

The Dow Jones industrial average rose 46.49, or 0.38%, to 12,262.89.

Broader stock indicators also rose. The Standard & Poor's 500 index advanced 7.48, or 0.57%, to 1,322.70, and the Nasdaq composite index rose 17.92, or 0.79%, to 2,279.10.

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 losing streak in 5½ years.

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

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

The dollar rose Monday against several other major currencies, easing pressure on commodities such as oil and gold. Light, sweet crude fell $4.04 to settle at $101.58 on the New York Mercantile Exchange, while gold fell $14.40 to finish at $916.20 an ounce on the Nymex.

Bond prices rose. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.41% from 3.45% late Friday.

Merck fell $6.56, or 15%, to $37.95 and Schering-Plough declined $5.06, or 26%, to $15.41 after medical researchers said the companies' joint anti-cholesterol drug, Vytorin, failed to improve heart disease. The researchers' findings, published by the New England Journal of Medicine, urged a return to more established treatments for cholesterol. Merck is one of the 30 stocks that comprise the Dow industrials and, as a result, dragged on the blue chips.

Citigroup rose 59 cents, or 2.8%, to $21.42 after announcing plans to split its consumer banking unit from its credit card business as part of a broader reorganization to cut costs and simplify the large financial institution's structure. The company suffered billions of dollars in losses from investments in poor-quality mortgages.

The Russell 2000 index of smaller companies rose 4.79, or 0.70%, to 687.97.

Overseas, Japan's Nikkei stock average fell 2.30%. Britain's FTSE 100 closed up 0.16%, Germany's DAX index fell 0.28%, and France's CAC-40 rose 0.24%.