Consumer spending rises

Updated at 1:15 p.m. ET

Investors dismissed data supporting the idea that the economy is starting to recover and pulled back today after Thursday's strong stock rally.

Stocks were moving lower this afternoon, despite a report from the Commerce Department that showed a 0.3% gain in consumer spending last month. It was the first gain in three months. And a report on consumer sentiment from the University of Michigan and Reuters that showed an improved reading of 70.8 in June, up from 68.7 in May, didn't help, either.  

At 1:15 p.m. ET. The Dow Jones Industrial Average ($DJIA) was down 48 points to 8,424 after gaining 173 points Thursday. The Nasdaq Composite Index ($COMPX) was up 2 points to 1,832, and the Standard & Poor's 500 Index ($INX) was lower by 4 points at 917.

Crude oil slipped $1.00 to $69.23 a barrel this afternoon.  

Consumer spending and sentiment both rise

The rise in consumer spending, which makes up about 70% of the economy, in May follows an upwardly revised 0.7% increase in April. Analysts had been looking for a 0.3% rise last month. After adjusting for inflation, spending was up 0.2%, the biggest gain since January.

• Check out what's ahead for stocks

"Consumers are starting to return to malls to spend a little more as they think we're through the worst," Chris Rupkey, the chief financial economist at Bank of Tokyo-Mitsubishi UFJ, told Bloomberg News. "The recession is ending." But Rupkey was cautious: "Purchases are likely to be modest until the job losses ease and companies start hiring."

U.S. personal incomes jumped 1.4% in May, the Commerce Department also reported this morning, thanks to tax cuts and one-time economic stimulus checks that went to Social Security beneficiaries. Excluding those payments, disposable incomes rose 0.2% last month.

Real disposable incomes, which are after taxes and are adjusted for inflation, rose 1.6% in May. The boost to incomes helped push the savings rate up to 6.9%, the highest level in 15 years. It had been as low as 0% in April 2008.

• Michael Jackson songs top iTunes, Amazon

June's rise in consumer sentiment was the fifth straight monthly increase, according to the University of Michigan/Reuters survey. Economists expected the final June reading to come in at 69. The index hit a 28-year low of 55.3 in November but has averaged 88.2 over the last decade.

"Consumers have become convinced that the steepest economic declines are now over, but very few consumers anticipate a quick end to the recession," said Richard Curtin, director of the survey, in a statement. "The majority of consumers reported that their financial situation had recently worsened, with income declines reported three times as frequently as income gains."

KB Home says new orders rise

Homebuilder KB Home (KBH) posted a second-quarter loss that was bigger than Wall Street expected this morning, but there was a silver lining to the report: The company said the weakness in the housing sector may be moderating.

KB Home also said new-home orders surged 59% in its most recent quarter, and only 20% of potential buyers backed out of contracts, fewer than last year's 27% cancellation rate.

Shares of KB Home fell $1.24, or 8.4%, to $13.53 this afternoon.

Palm shares jump 

Palm (PALM) shares jumped $2.19, or 15.6%, to $16.21 this afternoon after the company posted a narrower-than-expected loss late Thursday. The company's results did not include sales of its new device, the Pre, which it launched earlier this month in an effort to compete with Apple's (AAPL) iPod and Research In Motion's (RIMM) BlackBerry.

At least one expert was optimistic about the Pre.

"Palm put up a better quarter than expected as it tightened its belt ahead of the launch of the Pre and saw solid shipments of legacy products," Matthew Sheerin, an analyst at Thomas Weisel Partners, told MarketWatch. "From our initial checks as well as proprietary use/purchase of the Pre, we believe the launch has gone relatively well to date."

UBS lowers guidance

Swiss banking giant UBS (UBS) late Thursday said it raised about $3.5 billion in capital by selling 293.3 million shares. The sale was an effort to help improve confidence in the bank after posting losses amid the financial crisis.  

"This is certainly positive," Swiss Financial Market Supervisory Authority spokesman Tobias Lux told The Associated Press. It helps improve UBS's ability to absorb any shocks, he said.

UBS also said it expects a second-quarter loss as a result of reorganization costs.

Shares of UBS fell 73 cents, or 5.6%, to $12.24 this afternoon.