Closing Market Report
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Economic optimism brings stocks up
By Joe Bel Bruno
Associated Press
NEW YORK » Wall Street rallied for a second straight session yesterday after the government's latest gross domestic product reading showed the economy was in better shape than expected, easing concerns that growth was moderating too sharply. The Dow Jones industrials rose 90 points.
Investors were upbeat after a series of reports, including GDP, pointed to the likelihood of an economic soft landing after more than two years of interest rate hikes that ended in June. Major stock indexes held on to gains throughout the session even as oil prices moved to their highest levels in two months.
Providing ballast was the Commerce Department's report that GDP expanded at a 2.2 percent annual rate, topping its previous estimate of 1.6 percent and economists' projections for a 1.8 percent gain. Meanwhile, the Federal Reserve said in its beige book report that most areas of the U.S. had moderate economic growth in the first few weeks of November as consumer spending grew.
Wall Street appears to be in a consolidation phase after its big rally the past two months. The fact that it has rebounded and didn't extend Monday's plunge, when the Dow fell 158 points, indicates many investors want to keep buying although they're watching closely for any signs of economic trouble.
"The most recent data confirms the basic picture we've seen for some months is that it looks like we're heading toward a soft landing, inflationary pressure is easing, and that the housing market hasn't collapsed as some feared," said Ed Keon, chief investment strategist with Prudential Equity Group. "Soft landings, when we've had them, are great for stocks."
The Dow rose 90.28, or 0.74 percent, to 12,226.73. The Dow rose 14.74 Tuesday. Broader stock indicators also advanced. The Standard & Poor's 500 index was up 12.76, or 0.92 percent, at 1,399.48, and the Nasdaq composite index added 19.62, or 0.81 percent, to 2,432.23.
The pair of economic reports also indicated the housing slump hasn't been too much of a drag on the economy, and offset a Commerce Department report released yesterday that showed new home sales in October suffered their largest drop since July.
Another beneficiary of the healthy economic snapshot was the dollar, which rebounded from a 20-month low against the euro but was mixed against other major currencies.
All of this economic news came one day after Fed Chairman Ben Bernanke said U.S. growth will pick up next year. He said Fed policy makers, who meet again Dec. 12, would not hesitate to raise interest rates if inflation remained a risk.