Chemical shares rally after positive economic news

Shares of major chemical makers jumped Monday, as the broader markets rallied on positive reports about the state of American manufacturing, and consumer and construction spending.

The jump comes despite General Motors' bankruptcy filing. The automotive sector is a large customer for the chemical industry, buying paints, coatings and other products.

But investors seemed to discount that grim move, sending the Dow Jones industrial average, Nasdaq and Standard & Poor's 500 indices up more than 2 percent in midday trading.

The Commerce Department said Monday consumer spending fell by 0.1 percent in April, less than the 0.2 percent reduction forecast by economists. The government also said construction spending rose for the second-straight month in April by 0.8 percent, far better than the 1.2 percent decline expected.

And U.S. manufacturing activity also shrank at a slower pace in May, according to the Institute for Supply Management.

All that news offset GM's filing, which had been widely expected for some time.

Shares of DuPont _ which has helped GM in past financial troubles _ rose $1.36, or 4.8 percent, to $29.83. DuPont took control of General Motors in 1920 to preserve its nearly 30 percent stake, with former company president Pierre S. DuPont assuming the top job at the automaker. DuPont then sold its GM stake in the 1950s to assuage antitrust concerns.

Shares of Eastman Chemical Co. advanced $1.86, or 4.5 percent, to $43.30, and shares of PPG Industries Inc. rose $1.68, or 3.8 percent, to $46.15.

Shares of Ashland Inc. gained $1.61, or 6 percent, to $28.41, shares of PolyOne Corp. rose 11 cents, or 3.7 percent, to $3.12, and shares of Dow Chemical added 20 cents to $17.87.

While the economic data is a positive, Jefferies & Co. analyst Laurence Alexander warned Monday that rising energy costs could be a mixed bag for the chemical industry.

Investors have sent prices for crude and natural gas jumping in recent weeks, taking a bullish outlook on demand for the fossil fuels even as the recession drags on and many industry experts fear consumers won't need or want as much fuel.

Higher prices likely will be "incrementally negative" for Ashland, DuPont and Huntsman Corp. Alexander said.

But companies that focus in part on energy efficiency, like Air Products & Chemicals Inc., Praxair Inc. and Nalco could be helped by higher prices, he said.