Move into defensives helps lift Dow and S&P

By Edward Krudy

NEW YORK (Reuters) - The Dow industrials rose and the S&P 500 rebounded in late trading on Monday as investors' concerns about the strength of an economic recovery triggered a move into defensive stocks.

But the technology-heavy Nasdaq slipped as investors rotated out of the tech sector, which is viewed as more reliant on the economic cycle.

A series of reports showing the economy is in less dire straits than it was at the start of the year drove stocks sharply higher in the spring, but lately investors have been looking for consistent evidence of a sustained recovery.

Stocks were weak through most of the session until the last half hour when the push into sectors likely to outperform in a down economy helped healthcare stocks like Merck & Co (MRK.N), up 3.3 percent at $27.89, and consumer staples like Kraft Foods Inc (KFT.N), up 1.9 percent at $26.44.

While a report on the services sector was better than expected in June, the Institute for Supply Management's non-manufacturing data failed to relieve broader concerns raised by last week's unexpectedly weak June non-farm payrolls report. As a result, some investors turned to defensive stocks.

"Looking beyond this initial recovery phase, the economic expansion is going to be below average and that is going to be more favorable toward the defensive sectors of the market," said Henry Smith, chief investment officer of Haverford Trust Co in Philadelphia.

The Dow Jones industrial average .DJI gained 44.13 points, or 0.53 percent, to 8,324.87. The Standard & Poor's 500 Index .SPX added 2.30 points, or 0.26 percent, to 898.72. But the Nasdaq Composite Index .IXIC dropped 9.12 points, or 0.51 percent, to 1,787.40.

The S&P 500 has rallied as much as 40 percent from a 12-year closing low reached on March 9. But the benchmark index is now up only 32.8 percent since then as stocks have given up some of their gains on concerns about the economy.