Wall Street barreled higher yesterday 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 helped punctuate a week of generally upbeat economic readings that have left guarded investors somewhat optimistic. The weaker dollar helped boost US exports, which pushed GDP growth beyond the government's initial estimate of 1.9 percent as well as economists' forecast of 2.7 percent.
The increase also came as the government handed out rebate checks to taxpayers. 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 yesterday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. The number of 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 essentially flat after a big decline Monday on credit worries.
Broader stock indicators also rose yesterday. 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 other major currencies, as did gold prices.
"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.
