Fresh data on the surging economy stoked further fears on Tuesday that the Federal Reserve will ultimately raise interest rates to head off inflation.

The latest reading by the National Association of Purchasing Managers of manufacturing activity was far stronger than expected, causing bond and bank stock prices to plummet.

The NAPM survey for May also recorded the first increase in manufacturing prices in 18 months, which was due almost entirely to the impact of higher oil prices.

"Expect more talk of a near-term rate hike," said Ian Shepherdson of High Frequency Economics in Valhalla, N.Y. The Fed's monetary policymakers are scheduled to meet June 29.

The surprising NAPM report overshadowed several other indicators that suggested economic growth may be moderating.

Construction spending fell 2.4% in April, according to the Commerce Department. Most economists had expected the reading to be unchanged after strong reports for four straight months.

After an entire year without a month-to-month decline, "construction spending was due a correction, and this is it," Mr. Shepherdson said. Building activity declined 1% in housing, 3% in nonresidential, and 4.2% in public-sector categories.

Economist Stan Shipley of Merrill Lynch & Co. said the "industrial sector is firming," as signaled by the NAPM index, "while other sectors, such as construction, show signs of weakness."

In another report Tuesday, the index of leading economic indicators fell 0.1% in April, according to the Conference Board. Six of the index's 10 components contributed to the April decline, including building permits, vendor performance, and initial unemployment claims.

"This could be the first hint of more moderate overall economic growth in the next six months," Mr. Shipley said.

But it was the NAPM index that captured most attention as the banking and business communities went back to work after the three-day Memorial Day weekend.

The NAPM composite index jumped in May to 55.2, from 52.8 in April. A reading over 50 is taken to mean that the manufacturing sector is expanding. This was the fourth straight month the index has topped 50.

Every NAPM index component rose in May except inventory accumulation, Mr. Shipley noted. Fueled by oil price increases, the NAPM prices-paid index advanced in May to 52.2, from 49.9 in April. It is the first month in which this indicator has been over 50 since December 1997. The employment index rose to 53.5, from 49.5.

But a top NAPM official cautioned against overreaction.

Norbert J. Ore, who heads the association's business survey committee, said there was "no trend yet" toward higher manufacturing prices apparent in the one-month interruption of previously falling prices.

Mr. Ore, corporate purchasing director for Chesapeake Corp., said it is important to "recognize the depth" to which the group's prices-paid index had fallen.

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