NEW YORK (Reuters) – U.S. stocks closed at their highest level in 10 weeks on Monday and the S&P 500 pierced key technical levels as a weaker U.S. dollar lifted the energy and raw materials sectors.

Strong results in Europe from BNP Paribas SA (BNPP.PA) and HSBC Plc (HSBA.L)(HBC.N) added to the upbeat tone and lifted U.S. bank stocks. JPMorgan Chase & Co (JPM.N) rose 3.4 percent to $41.64 and the KBW Bank index (.BKX) gained 3.2 percent.

The falling greenback set off a 3 percent jump in crude prices, which, coupled with BP’s (BP.L)(BP.N) attempt to permanently cap its Macondo well in the Gulf of Mexico, sent energy shares soaring.

Macondo-linked companies rallied, with Transocean Ltd (RIGN.VX)(RIG.N) up 9.6 percent to $50.68. The Philadelphia exchange oil services sector index (.OSX) climbed 4.5 percent.

“Oil service and oil companies got overdone on the downside because of the problem in the Gulf, and now we are having a natural reaction back up,” said Carl Birkelbach, chief executive of Birkelbach Investment Securities in Chicago.

Crude futures settled above $81 per barrel for the first time since early May. The S&P energy sector (.GSPE) jumped 3.6 percent.

Raw materials also rose and the Reuters/Jefferies CRB commodity index (.CRB) hit a three-month high. Dow component and aluminum company Alcoa Inc (AA.N) advanced 4.8 percent to $11.71.

The 90-day correlation between the CRB and S&P 500 is currently .85, up dramatically from the 0.33 range in early May. Many investors reason rising raw material prices bodes well for global demand prospects.

The Dow Jones industrial average (.DJI) gained 208.44 points, or 1.99 percent, to 10,674.38. The Standard & Poor’s 500 Index (.SPX) advanced 24.26 points, or 2.20 percent, to 1,125.86. The Nasdaq Composite Index (.IXIC) rose 40.66 points, or 1.80 percent, to 2,295.36.

The S&P 500 closed the session above its 200-day moving average and the 1,121 level, the midpoint of the slide from its historic high reached in October 2007 and the 12-year low hit in March 2009, which has been viewed as a key resistance level.

The benchmark has not been able to close above this 50 percent retracement since mid-May.

“The more times a level is tested, it heightens the significance of the move when you finally do break through,” said Richard Ross, global technical strategist at Auerbach Grayson in New York.

The CBOE Volatility Index (.VIX) fell below its 200-day moving average, suggesting some of the near-term fear on the market has diminished. But options activity on VIX futures show that traders continue to anticipate higher volatility.

Since the beginning of May, the VIX has closed below its 200-day MA only twice, both times occurring last week.

“Even though VIX futures contracts were down, they still carry a premium to spot VIX, indicating traders expect significantly higher volatility for the rest of 2010,” said OptionMonster analyst Chris McKhann in Chicago.

Further boosting stocks, the Institute for Supply Management said the U.S. manufacturing sector grew at a faster rate than expected in July. The government reported construction spending unexpectedly rose in June.

Volume was light, with about 7.63 billion shares traded on the New York Stock Exchange, the American Stock Exchange and Nasdaq, well below last year’s estimated daily average of 9.65 billion.

Advancing stocks handily outnumbered declining ones on the NYSE by about 11 to two, while on the Nasdaq, advancers beat decliners by a ratio of five to two.

WASHINGTON/HOUSTON (Reuters) – BP Plc said on Monday it might still attempt the first of two operations to permanently plug its ruptured Gulf of Mexico well on Tuesday despite the technical delay of a crucial test.

Optimism about the planned “static kill,” which will involve the injection of drilling mud into the top of the well, helped fuel a rally in BP and other energy shares on Monday despite reports that U.S. regulators are investigating insider trading in the British energy giant’s stock.

But BP said a test ahead of the operation, which had been planned for Monday, would now likely take place Tuesday because a hydraulic leak was detected. BP had been aiming to begin the static kill itself on Tuesday and remained cautiously optimistic it could still do so.

“It is anticipated that the injectivity test and possibly the static kill will take place Tuesday,” BP said in a brief statement late on Monday, after U.S. markets had closed.

The well was temporarily sealed two weeks ago but the static kill followed by the completion of a relief well later in August are seen as the permanent solutions to the leaking well, which U.S. government scientists estimate has released almost 5 million barrels of oil since late April.

The worst oil spill in U.S. history has been an environmental and economic nightmare for the Gulf coast and even if the crude is no longer flowing unchecked, the legal and political fall-out is still spreading unabated.

At the same time, the Securities and Exchange Commission is investigating insider trading in shares of BP, including whether BP employees profited illegally from the spill.

FLOW REVISION

The full extent of the disaster was given added clarity on Monday when U.S. government scientists refined estimates of how much oil had flowed into the Gulf from the well.

The Flow Rate Technical Group and a team of scientists with the U.S. Department of Energy say 4.9 million barrels of oil have been released. The flow rate was put at 62,000 barrels a day at the start of the spill in late April.

That rate dropped to 53,000 barrels a day immediately before the well was sealed on July 15, the group said. Officials also said BP had siphoned about 16 percent of the 4.9 million barrels to vessels at the ocean’s surface, but the rest went into the sea.

The group’s previous leak estimate ranged from 35,000 to 60,000 barrels a day.

Investors will scrutinize these figures closely as BP’s final costs may be tied to how much oil is estimated to have flowed into the Gulf from the spill. BP has already announced plans to sell $30 billion in assets over the next 18 months to help cover its liabilities related to the disaster.

The U.S. insider trading probe will also rivet investors.

Two sources familiar with the preliminary SEC probe said the alleged insider trading took place after the start of the BP oil spill on April 20.

At issue is whether people illegally profited from trading on non-public information at BP. Investigators are also looking at whether the company properly disclosed information on risks related to its deepwater Gulf operations, one source said.

BP did not return calls for comment, but the investigation comes as the British company is trying to rehabilitate its image and tamp down public anger in the United States over its handling of the spill.

“BP can do no right by anybody and the U.S. government today — it’s not surprising they’re trying to throw the whole book at BP for anything they can,” said Robert Lutts, president, chief investment officer at Cabot Money Management.

STATIC KILL

But Lutts said investors were focused on BP’s “static kill,” when it plans to inject drilling mud into the top of the well to push oil back where it came from — a reservoir 13,000 feet/ beneath the seabed.

BP’s stock gained ground in New York, climbing 2.5 percent in afternoon trading, despite news of the SEC investigation.

“The stock has rallied since they may finally have a ‘cap’ to their problems. Now if we get a permanent fix, shareholders will be much more pleased going forward,” Lutts said.

Energy shares had a strong rally, fueled by optimism over BP’s plans and a 3 percent jump in crude oil prices. Companies linked to the Macondo oil field rallied, with Transocean Ltd up 9.6 percent to $50.68. The Philadelphia exchange oil services sector index climbed 4.5 percent.

The White House said it was “cautiously monitoring” the situation, mindful of previous setbacks in efforts to permanently kill the well.

President Barack Obama’s approval rating has slipped in part because voters have frowned on his handling of the spill

The top U.S. official overseeing the spill response, retired Coast Guard Admiral Thad Allen, said the kill would take 33-61 hours to complete once it got under way.

“I think everybody would like to have this thing ended as soon as possible,” Allen said.

To ensure the ruptured well is permanently sealed, BP will also proceed with its plans for a relief well that will intersect the damaged well and pump more heavy drilling mud and cement in from below to plug any openings.

Kent Wells, BP’s senior vice president of exploration and production, said the company expected the relief well to intercept the blown-out well between August 11-15.

A permanent seal to the well would end the months-long technical nightmare that began in April with an explosion on the rig that killed 11 workers and triggered the leak.

Gulf communities are still counting the costs after the forced the closure of large swaths of rich fishing grounds and the blow dealt to wildlife and tourism by the spill.

TOKYO – Stocks across Asia climbed early Tuesday after Wall Street opened August with a strong rally on positive indicators from around the globe.

Japan’s benchmark Nikkei 225 stock average jumped 1.7 percent to 9,732.81 in early trade, and South Korea’s Kospi rose 0.5 percent to 1,791.62.

Australia’s S&P/ASX 200 was 0.8 percent higher at 4,578.80. Shares in Shanghai, Taiwan and New Zealand were also up.

The gains followed big climbs in U.S. shares after a string of news on Monday that eased investor concern about economic growth slowing down in the U.S., China and Europe.

This included a report out of the U.S. that manufacturing activity was better during July than the market expected, and one from Europe showing the economy on the continent was recovering faster than previously thought. European banks also reported strong earnings.

In China, investors were relieved by news economic growth was moderate enough that the government won’t have to take steps to curtail it.

Some analysts, however, cautioned many traders were on vacation during the summer months, and lower activity in markets can exaggerate price swings.

Still, The Dow Jones industrial average shot up 208.44, or 2 percent, to 10,674.38, its highest close since May 13, with all 30 of its component stocks gaining on the day. The broader Standard & Poor’s 500 index rose 24.26, or 2.2 percent, to 1,125.86, while the tech-heavy Nasdaq composite index rose 40.66, or 1.8 percent, to 2,295.36.

In currencies, the dollar strengthened to 86.54 yen, up from 86.46 late Monday. The euro was slightly lower at $1.3170 versus $1.3178.

WASHINGTON (Reuters) – President Barack Obama said in an interview aired on Monday that the U.S. economy must grow faster and that unemployment is a “huge problem.”

“We’ve got to keep on growing faster than we’re currently growing,” he said in a CBS interview taped Friday and aired on the “Early Show.” “We’ve got to make sure that we deal with the long-term unemployment that’s out there which is a huge problem.”

U.S. economic growth slowed in the second quarter to a 2.4 percent annual rate. Obama’s popularity has been battered by a sluggish economy and a 9.5 percent unemployment rate.

“This has been an extraordinary downturn so that means that if you’re in a deeper hole, it’s going to take longer to come back,” Obama said.

“People have every right to be scared, to be angry, to be frustrated. I took this job because I was convinced that I could solve these problems not just short-term but long-term. But I also knew this was going to be a bumpy road ahead,” he said.

“I don’t expect the American people to be satisfied when we’re only half of the way back,” Obama said.

LONDON/BEIJING (Reuters) – Manufacturing in China shrank in July for the first time since March 2009 while it perked up in the euro zone, according to surveys that underscored the unevenness of the global economic recovery.

Global stock markets (.MIWD00000PUS) rose on Monday, viewing a declining Chinese manufacturing purchasing index as a signal of a desired slowdown rather than a harbinger of a slump.

Investors also looked ahead to the equivalent U.S. data due later on Monday for further signs that the recovery in the world’s biggest economy might be stalling, three days after second quarter output numbers there came in below forecasts.

Manufacturing surveys from two other big emerging economies served to bolster investor sentiment, with India marking its 16th month of expansion and Russia’s activity improving for the seventh month in a row.

The euro zone’s manufacturing purchasing managers index (PMI) rose higher above the 50 mark that separates growth from contraction to 56.7 in July from 55.6 in June, led by Germany and Italy.

But manufacturing growth slowed to its weakest in 10 months in France, illustrating how uneven the rebound is even within Europe.

HSBC’s PMI of Chinese companies showed government steps to slow bank lending and fight property speculation hit home, as the headline index dipped below the 50 mark for the first time since the depths of the global downturn.

“This is the slowdown that the government `wanted’ — this is no new global crisis,” said Roland Randall, strategist at TD Securities. “Targeted government restrictions and receding fiscal stimulus are to blame.”

A similar government survey published on Sunday showed a marked dip in growth but no contraction.

European manufacturing was supported by a hefty jump in activity in No.1 economy Germany and British factories that saw expansion easing only slightly in July, although both countries saw slowing export order growth.

“It is apparent that the improvement signaled by the euro area PMI for July was almost entirely driven by a growth spurt in Germany,” said Chris Williamson, chief economist at Markit.

On Monday, German retailer Metro (MEOG.DE) — the world’s 4th largest — said it was more confident about the economic recovery as it reported overall profits in line with forecasts.

But more worryingly, the PMI showed manufacturing growth in France slowed to a 10-month low, with little sign of a 27-month stretch of job losses abating.

PICKING UP THE SLACK

Business and consumer sentiment surveys in Europe have been largely positive over the past month, a trend underpinned on Monday by forecast-beating earnings from two of the continent’s heavyweight banks, HSBC (HSBA.L) and BNP Paribas (BNPP.PA), which drove its stock markets to a three-month high.

But the outlook for the United States seems less certain, marking a shift in expectations between the two regions that is reflected in recent comments from their top central bankers.

Two weeks ago, European Central Bank President Jean-Claude Trichet urged industrial countries to cut public spending immediately to consolidate the fiscal recovery.

But his U.S. Federal Reserve counterpart, Ben Bernanke, has instead talked of the room for further stimulus to counter any slowdown by pushing borrowing costs lower.

U.S. economic slipped to an annual rate of 2.4 percent in the second quarter from 3.7 percent in the first, official figures showed on Friday, heightening market concerns about growth there and leaving investors betting on China and the rest of Asia to pick up the slack.

The ISM U.S. manufacturing PMI is due from the Institute for Supply Management at 1400 GMT. That index is expected to drop to 54.1 in July from 56.2 in June.

“We are looking for any signs of disappointment in the U.S. data to show that the U.S. economic recovery is stalling. A figure above 50.0 but below forecast would send that signal,” a London bond trader said.

Even in fast-growing Asia there are worries the recovery could lose traction if the authorities in Beijing pull on the reins too hard, hitting demand in what has become a top export market for many of China’s regional peers.

July car sales in Japan and South Korea also pointed to uncertainty about the global economy. While Japanese sales rose for an 11th straight month, South Korea’s Hyundai Motor (005380.KS) showed slowing foreign sales.

Major currencies barely budged after the release of the PMI surveys, while an index of Asian stocks outside Japan (.MIAPJ0000PUS) edged up following the Chinese report.

WASHINGTON (AFP) – Federal Reserve President Ben Bernanke warned Monday that cuts in state government spending are slowing the US economic recovery, as he urged politicians to better manage funds in good times.

Facing plummeting tax revenues and bound by rules demanding a balanced budget, local governments across the United States have slashed spending and cut staff.

In California, Governor Arnold Schwarzenegger has declared a fiscal state of emergency and ordered most state employees to take three days of unpaid leave per month in a bid to save money.

“Many states and localities continue to face difficulties in maintaining essential services and have significantly cut their programs and work forces,” Bernanke said in a speech in South Carolina.

“These cuts have imposed hardships in local jurisdictions around the country and are also part of the reason for the sluggishness of the national recovery.”

Bernanke said the US economy continues to grow at a “moderate pace” after the worst recession in a generation, although a weak housing sector and other pillars of the economy continue to be moribund.

“We have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure, and lost savings.”

That spells prolonged difficulties for local governments, he warned.

“With economic conditions still far from normal, state budgets will probably remain under substantial pressure for a while, leaving governors and legislatures a difficult juggling act as they try to maintain essential services while meeting their budgetary obligations.”

He urged local governments, where possible, to save money when the recovery is established and surpluses return.

“I do not advocate changing the balanced-budget rules followed by 49 of the 50 states; they provide important discipline and are a key reason that states have not built up long-term debt burdens comparable to those of many national governments.

“However, as is the case today, these rules may force significant state cutbacks in bad economic times when services are most needed.

“Building a rainy-day fund during good times may not be politically popular, but it can pay off during the bad times.”

WASHINGTON – The nation faces a long road to get back to good economic health, Federal Reserve Chairman Ben Bernanke said Monday.

Bernanke said progress is being made after the deepest recession since the 1930s. The worst of the financial crisis is behind the nation and the economy is growing again, he pointed out.

“But we have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings,” the Fed chief said in a speech to an annual meeting of Southern lawmakers in Charleston, S.C.

It marks Bernanke’s first public comments since the government report released Friday showed the recovery lost a lot of momentum in the spring. The economy grew at a pace of just 2.4 percent in the April-to-June quarter, down from 3.7 percent growth at the start of the year. It was the slowest showing in nearly a year and is too weak to drive down near double-digit unemployment.

The bulk of Bernanke’s speech was about challenges facing cash-hungry state and local governments. Facing budget shortfalls, state and local governments have been cutting their spending and laying off workers to save money.

Bernanke cited those spending reductions as one of factors behind the “sluggishness of the national recovery.”

Economists in an AP Economy Survey, released last week, identified budget woes at state and local governments as a “significant” or “severe” threat to the economic recovery.

State and local governments cut their spending in the first three months of this year at a 3.8 percent pace. That was the biggest cutback since the second quarter of 1981, just before the economy entered a severe recession. They did boost their spending in the second quarter. Skeptical economists, however, think the figure will be revised down, and they predict state and local governments will resume their cutting through the rest of this year.

Fielding questions after his speech, Bernanke said one of the lessons learned from the Great Depression is that Washington policymakers shouldn’t pull in economic supports too quickly.

For Congress, that means not moving to slash the deficit or boost taxes right now. And, for the Fed, it means keeping interest rates low.

“We have to be careful about tightening too quickly in the near term — we can maintain some continued support for the economy in the very near term,” Bernanke said.

Economists said the Fed is all but certain to hold rates at record lows when it meets on Aug. 10 and repeat a pledge to keep them there for an “extended period.”

Bernanke didn’t use his speech to talk about any new steps the Fed might take to stimulate the economy.

Delivering the Fed’s economic report to Congress last month, Bernanke said the Fed stood ready to take new action to bolster the recovery if the economy flashed signs of backsliding.

The Fed could revive programs to buy mortgage securities or government debt. It could cut to zero the interest rate paid to banks on money left at the Fed or lower the rate banks pay for emergency Fed loans.

The rest of Bernanke’s assessment of national economic conditions mirrored his comments delivered to Congress. For instance, he repeated his observation that Europe’s debt crisis had roiled Wall Street, making financial conditions “somewhat less supportive” of economic growth in recent months.

WASHINGTON – It’s a rare bright spot in an otherwise troubled economy: The nation’s manufacturing sector has now grown for a solid year, and more of its companies say they’re ready to hire.

Chip maker Texas Instruments says its business has recovered to pre-recession levels. Intel, which makes semiconductors, posted its best quarterly profit in a decade. And chemical giant DuPont says its sales volume is up and recently raised its prices.

The Institute for Supply Management said Monday its manufacturing index slipped in July, to 55.5 from 56.2 in June. But it was the 12th straight month of readings above 50, which indicates expansion. At the depths of the recession, the index was closer to 30.

“Yes, the pace eased back a touch, but it was nothing to be worried about,” said Joel Naroff, president and chief economist for Naroff Economic Advisors.

Measures of production and new orders, which signal future business, both grew again, although more slowly than in June. And more manufacturers said they were willing to hire people.

The report, which comes out on the first business day of the month, surveys production managers at about 400 companies around the country, makers of products ranging from furniture and computers to food and tobacco.

Manufacturing growth has cooled for the past three months, but most of that was expected. The industry experienced strong growth last year because companies were replenishing their stockroom shelves after the recession.

Manufacturing accounts for about a fifth of U.S. economic activity, so it can’t carry the recovery on its own. But at a time when the housing market, consumer spending and other sectors of the economy are limping along, any sustained growth is welcome news.

The Dow Jones industrials surged 208 points to their highest level since May.

The service sector, which employs 80 percent of Americans, has lagged as high unemployment has made people nervous about spending money, especially for things like meals out and vacations.

“Manufacturing has led the entire recovery,” said Brian Bethune, chief financial economist at IHS Global Insight.

The housing market has struggled since a tax credits for homebuyers expired in April, a point confirmed Monday by a separate report that showed construction spending edging up slightly in June, with all the strength coming from government building.

The government reported last week that total economic growth slowed to a rate of 2.4 percent this spring, down from 3.7 percent growth in the first quarter and 5 percent at the end of last year.

In a speech Monday in South Carolina, Federal Reserve Chairman Ben Bernanke said the nation faces a long road back to good economic health. He noted the worst of the financial crisis is behind the nation and the economy is growing again.

“But we have a considerable way to go to achieve a full recovery in our economy, and many Americans are still grappling with unemployment, foreclosure and lost savings,” Bernanke said in a speech to an annual meeting of Southern lawmakers in Charleston.

Indeed, a county-by-county Associated Press analysis found that the nation’s overall economic stress worsened in June after easing for four months in a row. Bankruptcies in the West and foreclosures outside the Sun Belt outweighed lower unemployment.

The manufacturing index peaked at 60.4 in April. Its low for the recession was 32.5, in December 2008.

The July report suggests that manufacturing will grow for the rest of the year, and more quickly than the broader economy, said Dan Meckstroth, chief economist for the Manufacturers Alliance/MAPI, an industry association.

Businesses are investing more money on equipment and software, instead of new workers. That is helping them grow at a time when customers are spending less.

Democrats on Capitol Hill seized on the success of manufacturing to make the case that that their economic strategies are working, highlighting the creation of 136,000 new jobs since last December. Manufacturers have added jobs for six straight months for the first time since 2006, they said.

In a conference call with reporters, House Majority Leader Steny Hoyer, D-Md., and Rep. Carolyn Maloney, D-N.Y., sought to contrast the turnaround with the industry’s contraction under President George W. Bush.

“We know that (manufacturing) produces good jobs, high paying jobs.” Hoyer said. “We know that our workers can compete with any workers in the world.”

With the midterm elections three months away, Republicans are arguing that Democrats’ $862 billion stimulus program hurt the economy by increasing the deficit without adding enough jobs. They say cutting taxes and regulation would have helped more.

While the manufacturing sector keeps growing, the construction industry has struggled since the federal government ended a popular homebuyers tax credit on April 30.

Spending on housing construction fell in June for a second consecutive month, dropping 0.8 percent after an even bigger 1.5 percent decline in May.

Spending on nonresidential building projects fell for a 15th consecutive month, dropping 0.5 percent in June. This sector has been hard hit by the economic downturn, which has triggered rising defaults on commercial real estate projects. That has prompted banks to tighten lending standards and made it harder for builders to get financing for new projects.

The only strength in June came in the government sector. Overall public construction rose 1.5 percent. That reflected a 1.1 percent increase in spending by state and local governments on roads, sewer projects and public buildings, and a 4.6 percent increase in federal government spending on projects.