The manufacturing sector grew for a 17th straight month in December, adding to recent evidence that a recovery in the economy was picking up steam, according to an industry report released on Monday.

U.S. construction spending rose more than expected in November to touch its highest level in five months, a government report showed, a further sign that the economic recovery was gaining momentum.

KEY POINTS: * The Institute for Supply Management said its index of national factory activity rose to 57.0 last month from 56.6 in November. * That was in line with the 57.0 median forecast of the 57 economists surveyed by Reuters. * A reading above 50 indicates expansion in the sector. * The Commerce Department said construction spending increased 0.4 percent to an annual rate of $810.2 billion, the highest level since June, after rising by an unrevised 0.7 percent in October. * November's increase in construction outlays marked the third straight month of gains. * Economists polled by Reuters had forecast construction spending gaining 0.2 percent in November.

COMMENTS:

ISM:

DAVID ADER, HEAD OF GOVERNMENT BOND STRATEGY, CRT CAPITAL

GROUP, STAMFORD, CONNECTICUT:

A firmer tone to ISM will lead the sway here, and we note that (Norbert) Ore's concerns of new orders minus inventories rose, suggesting new orders are outperforming inventories so bodes well for manufacturing -- best reading since June.

Prices paid is an issue, but translation to end users is so far weak. The jobs component is an outlier and the weakest since April and with the employment prospects also weak in last week's consumer confidence report suggests a softish non-farm payrolls on Friday.

ERIC GREEN, CHIEF ECONOMIST, HEAD OF RATES STRATEGY, TD

SECURITIES, NEW YORK:

I think the market was looking to the possibility of a much stronger number, given the recent trend in the data. Instead it came in right on expectations.

But it looks to be a very strong one. I like to focus on new orders, because new orders will lead other components higher over subsequent releases. That is at the high that we've seen since May, production also much stronger, inventories weaker, so I suspect that will probably be heading up over the next month or two.

I think we're looking at a number the feels a little stronger than the headline, so it continues to the pattern in which this economy is showing every indication that the momentum is turning pretty decisively to the upside.

GARY THAYER, CHIEF MACROSTRATEGIST, WELLS FARGO ADVISORS, ST.

LOUIS, MISSOURI:

The ISM manufacturing index is encouraging. In particular, it looks like the orders component rose, but the employment component decreased a little. Things are getting better, but not everywhere. It looks like we're starting the year with some favorable news.

ZACH PANDL, U.S. ECONOMIST, NOMURA SECURITIES, NEW YORK:

We're off to the new year on a strong foot. You're on consensus expectations. The underlying details of the report were very strong. The improvement wasn't as great as you saw in some of the regional manufacturing indicators, but it does suggest the economy is accelerating and growth should be 3 percent in the first quarter.

The Fed cares about gaps, not growth. Inflation is still low in relation to its target and unemployment is still way too high.

In the rates market, we had an extremely large sell-off going into the end of the year that investors are still trying to digest. The economy is going into an inflection point and investors are still trying to find fair value.

It's going to be very difficult for rates to go much lower from here.

DAVID CARTER, CHIEF INVESTMENT OFFICER AT LENOX ADVISORS IN NEW

YORK:

These good numbers continue the story of an economic recovery. No single data point made that story, this is the result of a string of good numbers. That said, while these are higher than expected, they're still not great. Forecasts have been pessimistic, so this is really just reality coming in better than weak forecasts.

For the market in general, we're off to a new start and people are optimistic. Expectations are high that the economy will continue to recover in 2011, and the notion of another round of quantitative easing is still on the table. China will slow a bit, but they'll be hitting the pause button, not the stop button. Fundamentals are in place for economic and financial market strength.

MARKET REACTION: STOCKS: U.S. stocks hold gains after the data. BONDS: U.S. Treasury bond prices steady at lower levels. FOREX: The dollar trimmed its gains versus the yen and euro.

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