By Seth Sutel
The Associated Press
NEW YORK - A better-than-expected gross domestic product reading soothed investors' latest economic worries Thursday, sending stocks sharply higher on the expectation of robust second-quarter earnings.
The positive economic data were well received by Wall Street, a notable change from recent months when the buoyant economy made investors concerned about 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."
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.
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.
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."
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.
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