updated 5/28/2004 9:01:35 AM ET 2004-05-28T13:01:35

A better-than-expected gross domestic product reading soothed investors’ latest economic worries Thursday, sending blue-chip stocks sharply higher on the expectation of robust second-quarter earnings.

Major Market Indices

The positive economic data was well received by Wall Street, a notable change from recent months when the buoyant economy made investors concerned over rising interest rates and the possibility of inflation. But it also calmed a market that only Wednesday was worried that the economy might be slowing too much.

Investors were also encouraged by a decline in weekly jobless claims and easing oil prices.

John Lynch, chief market analyst at Evergreen Investments, said interest rate jitters and inflation woes have largely worked their way through the markets, with investors finally focusing on positive fundamentals including strong consumption and business spending.

“The perception of bad stuff has been priced in,” Lynch said. “Interest rates, oil prices, yes, they could serve to limit growth. But I think investors are really thinking that this is all priced in. It’s a day of clarity.”

The Dow Jones industrial average was up 95.31 points, or 0.9 percent, at 10,205.20 by the close. The Dow last closed above that level on May 6, and has risen 246.77 points, or 2.5 percent, since Monday’s close.

Broader stock indices were moderately higher. The Standard & Poor’s 500-stock index was up 6.34 points, or 0.6 percent, at 1,121.28 and the Nasdaq composite index gained 8.35 points, or 0.4 percent, to close at 1,984.50. It was the best close for the S&P 500 index since April 29, and the best close for the Nasdaq composite since April 28.

Before the market opened, the Commerce Department reported that the economy grew at a 4.4 percent annual rate in the first quarter of this year. The solid growth rate was slightly faster than the 4.2 percent pace first estimated a month ago as well as the 4.1 percent growth rate registered in the final quarter of 2003.

Separately, the Labor Department said new applications for unemployment benefits dropped last week by a seasonally adjusted 3,000 to 344,000. Oil prices also eased, slipping below the $40 per barrel mark, easing another source of recent worry for investors.

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The good news, which raised the prospect of another quarter of solid earnings, sent buyers back into the market, though volume remained moderate. The market has been particularly fractious this week after two months of declines; investors have alternated between feeling upbeat about the economy and company profits and worrying that economic growth might be slowing too much.

Commerce Department reports of a decline in durable goods orders and a drop in new home sales set off selling in Wednesday’s session.

On Thursday, buying was widespread throughout all sectors of the stock market, with only the American Stock Exchange Oil Index posting losses for the session.

And Commerce Department reports of a decline in durable goods orders and a drop in new home sales provided some evidence that the booming economy was cooling.

Bryan Piskorowski, a market analyst at Wachovia Securities, said Wall Street was already looking ahead to next week’s May employment numbers for the next clues about how quickly the Federal Reserve may raise interest rates.

“The oil decline is giving us some breathing room,” he said “Good economic data is somewhat expected at this point, and weak economic data will get people to rethink how aggressive the Fed is going to be.”

Home Depot Inc. gained 38 cents to $35.84 after the home improvement retailer announced that it was increasing its quarterly dividend by 25 percent and authorizing a $1 billion share repurchase plan.

Costco Wholesale Corp., another major retailer, was up 63 cents at $38.07 after the company reported that its net income surged 29 percent in the fiscal third quarter as sales and membership fees also rose.

Guidant Corp. rose 44 cents to $54.05 after the medical-device maker said it may record additional charges for research and development during the year.

Advancing issues outnumbered declining ones by more than 2 to 1 on the New York Stock Exchange, where volume came to 1.49 billion shares, compared with 1.37 billion on Wednesday.

Overseas, Japan’s Nikkei stock average rose 0.1 percent. In Europe, Britain’s FTSE 100 closed up 0.3 percent, France’s CAC-40 gained 0.5 percent and Germany’s DAX index rose 1.2 percent.

© 2012 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.


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