updated 1/31/2005 8:33:06 AM ET 2005-01-31T13:33:06

Disappointing growth in the nation’s gross domestic product pushed stocks lower Friday, even as investors welcomed a $57 billion merger between Procter & Gamble Co. and Gillette Co. Despite the day’s losses, the market’s major stock indices eked out the first winning week of 2005.

Major Market Indices

While investors were cheered by P&G’s bid for Gillette and strong profits from Microsoft Corp., surprisingly weak economic data robbed the markets of any buying momentum. The Commerce Department reported that the GDP — the value of all goods and services produced in the United States — rose at an annual rate of just 3.1 percent in the fourth quarter, the lowest gain in seven quarters. Economists had expected a 3.5 percent rise.

(MSNBC is a Microsoft-NBC joint venture.)

With elections in Iraq on Sunday, a Federal Reserve meeting beginning Tuesday and the Labor Department’s monthly job creation report due next Friday, investors used the GDP figure as another reason to sell stocks ahead of these uncertainties.

“The thought is that the GDP was a disappointment, but I don’t know anybody really cares about GDP. It’s not the end of the world,” said Brian Pears, “This market has been in a very strong bearish trend for the entire year, such as it is. It’s like people walk in every day to find a reason to justify that trend because they’re afraid.”

The Dow Jones industrial average finished the day down 40.20 points, or 0.4 percent, while the Standard & Poor’s 500-stock index was down 3.19 points, or 0.3 percent. The tech-rich Nasdaq composite index slid 11.32 points, or 0.6 percent.

The market finally paid attention to strong earnings and generally positive economic data over the past week, resulting in a strong two-day rally. However, anxiety over the Iraqi elections and Friday’s GDP number erased much of those gains.

Nonetheless, the market’s three major stock indices were positive for the week — barely. The Dow advanced 0.3 percent, the S&P 500 rose 0.3 percent and the Nasdaq composite gained 0.1 percent. Those gains reversed a three-week slide.

Wall Street had expected the economy to slow somewhat from the 4 percent annual pace posted in the third quarter of 2004, but Friday’s GDP reading showed far more of a slowdown than analysts had believed. That raises concerns about profit growth for future quarters as well as the health of the labor market.

The Federal Reserve is scheduled to meet next Tuesday and Wednesday, and is widely expected to raise the nation’s benchmark interest rate to 2.5 percent from the current 2.25 percent. While there have been concerns about rising prices and inflation, slower economic growth could keep the Fed from a more aggressive rate policy.

“I definitely think the GDP backdrop is troubling. I think oil prices had a much bigger impact on the economy than people thought, and oil prices actually went down in the quarter,” said Jack Ablin, chief investment officer at Harris Private Bank in Chicago. “I thought a 3.5 percent increase was in the bag. Now we’ll see what the Federal Reserve thinks next week.”

With economic uncertainty continuing, American corporations are holding fast to large reserves of cash, hoping for a better economic environment in which to expand. And as the recent merger activity has shown, many companies are opting to use that cash to buy other companies.

Procter & Gamble’s bid for Gillette would create a consumer products maker with a wide swath of brand names in healthcare products, food and other consumer staples. Berkshire Hathaway founder Warren Buffett, the single largest Gillette shareholder, called the merger “a dream deal,” and said he would buy up P&G shares as well. P&G dropped $1.17 to $54.15 on the news, while Gillette surged $5.92, or 12.96 percent, to $51.60.

Microsoft edged 7 cents higher to $26.18 after its earnings, announced late Thursday, surpassed Wall Street’s profit forecasts by 2 cents per share. The software giant and Dow component also reported its first profitable quarter for its home and entertainment division, thanks to strong sales of its Xbox Live online game service and the video game hit Halo2.

Fellow Dow industrial McDonald’s Corp. saw its fourth-quarter profits triple from a year ago, though the fast-food chain fell short of Wall Street profit estimates by a penny per share. Revenues rose 10 percent from the year-ago quarter. McDonald’s was down 12 cents at $32.

The Boeing Co. scored a major coup over rival aircraft manufacturer Airbus SAS with a $7.3 billion deal to provide six Chinese airlines with 60 of the company’s new 7E7 Dreamliner passenger jets. It was the biggest order yet for Boeing’s newest jet. Boeing nonetheless fell $1.05 to $49.92.

Merck & Co. plunged $3.16, or 10.13 percent, to $28.02 after a federal court ruled that the drug maker will lose patent protection on Fosamax, the company’s second best-selling drug, in 2008 instead of 2018. The U.S. Securities and Exchange Commission also announced a formal probe into the company’s marketing of the discredited arthritis drug Vioxx.

Overseas, Japan’s Nikkei stock average fell 0.18 percent. In Europe, Britain’s FTSE 100 closed down 0.42 percent, France’s CAC-40 dropped 0.54 percent for the session and Germany’s DAX index lost 0.35 percent.

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

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