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UPDATE 3-ISM corrects May factory data after hours of confusion

(Recasts lead, top of story, added news on ISM's correction)

June 2 (Reuters) - The Institute for Supply Management corrected its key manufacturing activity index for May to 55.4, nearly in line with expectations, after economists on Monday said the original release's reading of 53.2 was incorrect.

The report initially suggested a weakening in the pace of factory-sector growth, but economists, including Stone & McCarthy Research Associates, said seasonal adjustments appeared to have been incorrectly applied to the figures.

It took ISM nearly three hours to issue an official statement revising the data. CNBC initially reported the correction would be to a reading of 56.

The 55.4 figure was in line with what Stone & McCarthy said it should be after running the numbers themselves after the initial 10 a.m. EDT (1400 GMT) release.

Kenneth Kim, economist at Stone & McCarthy in Princeton, New Jersey, said he took the numbers from ISM's website but found that his result "wasn't adding up to their reported figures."

He then ran the calculations using the seasonal adjustment factor applied to April's report, not May's, and the numbers were the same as those reported.

"That was confirmation on where the mistake happened," Kim said. He said he reached out to ISM earlier in the day to point out his findings but received no response.

The weaker-than-expected initial report weighed on stocks and helped bond prices.

After chatter of a correction started making the rounds, investors sold U.S. Treasuries, boosting the yield to a high of about 2.54 percent on the changed data.

The stock market reacted positively, rebounding from modest losses. The S&P 500 was lately up fractionally.

ISM did not respond to repeated requests for comment.

"People are still looking for signs that the economy is recovering, and the first ISM number had people questioning the strength of the economy," said John Carey, portfolio manager at Pioneer Investment Management in Boston, which has about $220 billion in assets under management.

"This revision gives us more reason to be confident, and it isn't surprising to see stocks recover a bit, since we're so sensitive to data right now."

Sub-indexes in the report on new orders and employment were higher than initially reported.

(Reporting By Rodrigo Campos and Ryan Vlastelica; Editing by Chizu Nomiyama and Meredith Mazzilli)