Surprising GDP helps stocks close sharply up

/ Source: The Associated Press

Wall Street barreled higher Thursday after a better-than-expected reading on the gross domestic product and a drop in jobless claims gave investors some reassurance that the economy is holding up. The Dow Jones industrial average jumped more than 200 points.

A decline in oil prices also appeared to add force to the rally in stocks. But trading volume was again light heading toward the Labor Day weekend, a condition that can skew price moves.

The Commerce Department’s report that gross domestic product rose at an annual rate of 3.3 percent for the April-June period followed several economic readings this week that have left guarded investors somewhat optimistic. The weaker dollar helped boost U.S. exports, which pushed GDP growth beyond the government’s initial estimate of 1.9 percent as well as economists’ forecast of 2.7 percent.

It marked the economy’s best performance since the third quarter of last year, when GDP rose at a 4.8 percent pace.

Investors are watching GDP, considered the best barometer of the economy’s well-being, to look for signs that growth is picking up after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9 percent in the first quarter after shrinking in the last three months of 2007.

Also Thursday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. Claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.

But some economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with high energy costs and tighter credit.

The Dow rose 212.67, or 1.85 percent, to 11,715.18, bringing its three-day advance to nearly 330 points. Still, for the week, the Dow is up only slightly after a big decline Monday on credit worries.

Broader stock indicators also rose Thursday. The Standard & Poor’s 500 index advanced 19.02, or 1.48 percent, to 1,300.68, and the Nasdaq composite index rose 29.18, or 1.22 percent, to 2,411.64.

Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.79 percent from 3.77 percent late Wednesday. The dollar rose against most major currencies. Gold also advanced.

“This is an environment in which we’re likely to get a lot of head-fakes both on the upside and the downside,” said Bill Urban, principal with San Francisco-based Bingham, Osborn & Scarborough, referring to economic data. He noted that the initial reading on the fourth quarter last year had been positive before revisions revealed the economy contracted.

“This is just sort of data that trickles out that can be very positive one day and negative the next. We don’t yet think it signals a trend,” he said.

Beyond economic reports, investors are watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course that could collide with oil and gas platforms. Oil rose in the early going on concerns about the storm but a strengthening dollar upended oil’s climb.

Light, sweet crude fell $2.56 to settle at $115.59 on the New York Mercantile Exchange.

The decline in oil made energy stocks one of the session’s few areas of weakness.

Devon Energy Corp. fell $3.62, or 3.4 percent, to $103.16, while Hess Corp. fell $1.61, or 1.5 percent, to $105.53.

Financial shares advanced after MBIA Inc. agreed to reinsure nearly $200 billion of municipal bonds backed by FGIC Corp. The deal between the two bond insurers led to some hopes that the troubled credit market is beginning to right itself. MBIA jumped $4.17, or 35 percent, to $16.15. Other bond insurers also rose, with Ambac Financial Group Inc. climbing $2.18, or 42 percent, to $7.42.

Government-chartered mortgage companies Fannie Mae and Freddie Mac rose for a fourth straight session after Fannie Mae announced a management shake-up and analysts raised further doubts that a government bailout of the companies is in the offing; such a move could wipe out shareholder equity. Fannie Mae rose $1.47, or 23 percent, to $7.95, while Freddie Mac rose 53 cents, or 11 percent, to $5.28.

Among retailers, Tiffany & Co. jumped $4.24, or 11 percent, to $43.85 after reporting that its second-quarter profit doubled as sales jumped in Asia and Europe.

Zale Corp. forecast a fiscal 2009 profit that topped what Wall Street had been expecting. The specialty jeweler rose $4.77, or 21 percent, to $27.92.

Investors have been looking at retailers’ results this week for insights into the health of consumers, whose spending accounts for more than two-thirds of U.S. economic activity. Several upbeat retail reports Wednesday helped buoy Wall Street’s mood.

Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 956.2 million shares compared with 820.6 million shares Wednesday.

The Russell 2000 index of smaller companies rose 14.84, or 2.02 percent, to 747.79.

Overseas, Japan’s Nikkei stock average edged up 0.12 percent. Britain’s FTSE 100 rose 1.32 percent, Germany’s DAX index added 1.57 percent, and France’s CAC-40 jumped 2.02 percent.