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Economic Reports Buoy Stocks; GM Gains?

Stocks advanced Monday as investors were encouraged by economic reports out of China and the U.S. and shrugged off the General Motors bankruptcy filing.

Fueling the fire, the S&P 500 broke above its 200-day moving average, 928. Once it crossed over, there was no looking back and all three major indexes shot higher.

China's manufacturing sector continued to expand, albeit moderately, in May. That gave investors encouragement that China's economy is stabilizing and the worst may be over for the global economy.

That not only boosted stocks, it also fueled the rise in oil prices, which topped $67 a barrelthis morning.

>> Want to Make Money on Stocks? Ask a Fifth Grader!

Here in the U.S., a report showed an improvement in America's factories: The Institute for Supply Management's gauge of manufacturing activity rose to 42.8 in May from 40.1 in March, slightly better than the 42 economists had expected.

And construction spending jumped 0.8 percent in April, double of March's 0.4-percent increase.

Personal income rose 0.5 percentin April, helped by the Obama stimulus package, though spending slipped 0.1 percent. The personal savings rate jumped to 5.7 percent from 4.5 percent in March and the highest increase since 1995.

The rise in income and drop in spending means consumers, despite their newfound confidence, aren't translating that confidence into spending. Still, economists had expected income to fall and the drop in spending was a slower pace than in March.

The major indexes racked up a gain for the month of May, marking the third positive month in a row, as the momentum of the recent rally held.

As expected, General Motorsfiled for bankruptcy protectionthis morning as part of a plan that will see US taxpayers taking a 60 percent stake in the company.

President Barack Obama will address these developments in a speech at around 11:30 am, while General Motors officials will hold a news conference detailing the latest events at about noon.

Shares of GM rebounded back up near $1 after dropping below 50 cents earlier. The buzz on the floor is that it's all short coveringahead of the stock's move to the Pink Sheets tonight.

Changes to the Dow were announced this morning: Cisco and Travelerswill replace General Motors and Citigroup in the blue-chip index, effective next Monday.

>> Dow Changes=Arbitrage Opportunity?

Meanwhile, a judge cleared Chrysler to sell most of its assets to Italy's Fiat, moving the automaker one step closer to exiting bankruptcy protection, possibly this week.

Fiat will control 20 percent of the assets, a health-care trust aligned with the United Auto Workers union will control 68 percent and the U.S. and Canadian governments will control the remaining 12 percent.

On the flip side, Ford was benefiting from the turmoil in the industry and said it plans to increase production 10 percent this year to make up for slowdowns in the industry. It shares surged about 5 percent, after gaining about 17 percent in the past two weeks.

Generally, investors remain optimistic that stocks will continue to rise as long as the government can keep a lid on Treasurys yields. A 30-year bond yield under 5 percent will keep investors in equities, John Brady of MF Global told CNBC.

Should 30-year yields eclipse that point, "It will reintroduce volatility into the equity markets in a meaningful way," Brady said.

In the meantime, though, the market's main fear gauge, the Chicago Board Options Exchange's Volatility Index, remained below the critical 30 level that generally indicates high anxiety.

Elsewhere, shares of Irish biotech Elan gained more than 10 percent on news that it was looking into selling a minority stake to Bristol Myers Squibb. Bristol Myers stock ticked slightly higher.

ArcelorMittal rose more than 6 percent following news that the steelmaker had reached a deal with workers in Kazakhstan for three-month pay reductions that eliminated the need for mass layoffs. The company already has laid off about 1,000 of its American workers in a move to cut costs.

Asian stocks closed firmly higher as strong data from China’s manufacturing sector boosted basic resources stocks. And European indexes followed the Asian market higher.

This Week:

MONDAY: Obama speaks on GM; Geithner in China
TUESDAY: Auto sales; pending-home sales; Earnings from Hovnanian
WEDNESDAY: Weekly mortgage applications; ADP employment report; ISM services index; factory orders; weekly crude inventories; Earnings from Toll Bros.
THURSDAY: NY Fed Pres. Dudley speaks; Chain-store sales; ECB, BOE rate decisions; weekly jobless claims; Earnings from Ciena
FRIDAY: May jobs report; consumer credit

Send comments to cindy.perman@nbcuni.com.