Factory activity growth slowed in May to its lowest level since September 2009, suggesting a loss of momentum in the economy in the second quarter, according to the Institute for Supply Management.

KEY POINTS: * The Institute for Supply Management (ISM) said its index of national factory activity fell to 53.5 in May from 60.4 the month before. The reading missed economists' expectations for 57.7. * A reading below 50 indicates contraction in the manufacturing sector, while a number above 50 means expansion. * New orders fell to 51.0 from 61.7 in April, the lowest since June 2009. The index for prices paid fell to 76.5 from 85.5, below expectations of 82.0.

COMMENTS:

DAVID DIETZE, CHIEF INVESTMENT STRATEGIST, POINT VIEW FINANCIAL SERVICES, SUMMIT, NEW JERSEY:

ISM is down, now the only thing to keep in mind is that anything over 50 is still expansion, but it does seem like the momentum is waning. From the investors' point of view and economists' point of view, manufacturing was the bright spot in terms of this domestic recovery because the consumer was being weighed down by high joblessness, by sinking home prices and for the most part are not really participating in the stock market.

GREG SALVAGGIO, VICE PRESIDENT OF TRADING, TEMPUS CONSULTING, WASHINGTON, DC:

It's a bit worrisome on the back of the consumer numbers yesterday and the ADP report this morning. One has to wonder whether the U.S. recovery is starting to stumble. It draws a big bull's-eye on Friday's payrolls report. We'll need to see job creation of 175,000-180,000. Anything short of that will be viewed as negative. Bonds are rallying, so the market perceives the Fed will remain on hold.

BRET BARKER, PORTFOLIO MANAGER AT TCW, LOS ANGELES:

ISM came in very weak. It is hard to find a silver lining in this report, with all pertinent forward-looking sub-indices weaker -- new orders, backlog of orders and production are confirmation we have hit a lull in manufacturing.

GARY THAYER, CHIEF MACRO STRATEGIST, WELLS FARGO ADVISORS, ST. LOUIS, MISSOURI:

It's a slowdown, not a recession. We've had some pretty good numbers earlier this year but clearly the manufacturing side of the economy is cooling off. We've got supply chain problems from Japan and we're seeing a slowdown not just here in the U.S., but in other parts of the world also. Higher energy prices could be dampening demand for goods. That could linger a little longer than the supply chain problems.

MARKET REACTION: STOCKS: U.S. stock indexes added to losses BONDS: U.S. bond prices added to gains FOREX: The dollar added to losses against the yen

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