Optimism Buoys Wall Street Despite GDP Data

 

Investors aren’t letting a bad gross domestic product reading get to them.

Stocks surged Wednesday, lifting the Dow Jones industrials more than 100 points, even after the government said the economy as measured by the GDP contracted at at an annual rate of 6.1 percent during the first three months of the year. That was a much steeper drop than the 5 percent forecast by economists polled by Thomson Reuters.

Though the report shows the recession has yet to loosen its grip on the country, investors are not losing hope.

The market is eager for the Federal Reserve’s assessment of the economy, expected later Wednesday at the conclusion of its interest rate meeting. Investors also are curious to see if the central bank will accelerate its buying of Treasurys. After lowering its target rate to a range of zero to 0.25 percent, the Fed started buying government debt in March to try to lower rates in the market even further.

The Dow remains 22 percent above its early March lows, but stocks have been vacillating over the past several days on fears of a swine flu pandemic and ongoing concern about the health of the country’s biggest banks.

In early morning trading, the Dow jumped 101.15, or 1.3 percent, to 8,118.10. The Standard & Poor’s 500 index gained 11.38, or 1.3 percent, to 866.54, and the Nasdaq composite index advanced 21.56, or 1.3 percent, to 1,695.37.

Swine flu worries triggered a selloff in the stock market Monday. Then on Tuesday, news that Citigroup Inc. and Bank of America Corp. might need more capital left the major indexes with losses. Tuesday’s pullback was modest, though, thanks to data showing a sharp jump in consumer confidence.

Furthermore, anxiety about swine flu is abating in the global markets. Countries around the world are testing potential cases and girding for a widespread outbreak. But so far, it seems the disease might be becoming less virulent the further away it is from Mexico, its apparent source.

Investors are still keenly focused on the financial sector, however.

Bank of America is preparing for what is expected to be a contentious annual meeting on Wednesday. The Charlotte, N.C.-based bank — one of the biggest recipients of government support — is facing pressure from shareholders for its acquisition of Merrill Lynch, with some investor groups calling for the ouster of Chairman and CEO Ken Lewis.

Meanwhile, Citigroup, which has also received massive amounts of federal aid, is said to be seeking permission from the Treasury Department to pay special bonuses to employees. According to a report in The Wall Street Journal late Tuesday, some key employees are threatening to leave the company because of pay restrictions placed on the bank by the government.

In earnings news, media conglomerate Time Warner Inc. said its first-quarter profit fell 14 percent on deteriorating ad sales, though results were better than Wall Street expected.

Burger King Corp. said its profit rose 15 percent, but the nation’s No. 2 hamburger chain cut its full-year guidance due to the weak environment and possible affect of the swine flu.

Defense contractor General Dynamics Corp.‘s first-quarter earnings rose 3 percent as sales of warships and other other military equipment offset lower profits from corporate jets.

The market has wavered some in recent weeks as earnings reports pour in, but results have largely exceeded expectations and it appears as if the reports aren’t bad enough to derail the market’s nearly two-month rally. Now, however, investors are looking for the next big piece of positive news to carry the market forward.

“What we’re dealing with now is a consolidation phase and it’s about trying to find the next catalyst to take us higher,” said Robert Pavlik, chief market strategist at New York-based Banyan Partners LLC.

In overseas trading, Japan’s Nikkei stock average fell 2.7 percent. In afternoon trading, Britain’s FTSE 100 rose 1.3 percent, Germany’s DAX index rose 0.9 percent and France’s CAC-40 rose 1.3 percent.

In other trading, the Russell 2000 index of smaller companies rose 6.32, or 1.3 percent, to 479.16.

Advancing issues outnumbered decliners by about 5 to 1 on the New York Stock Exchange, where volume came to 119.2 million shares.

U.S. government bond prices were mixed.

The dollar was lower against other major currencies. Gold prices rose.

Light, sweet crude rose 76 cents to $50.69 a barrel on the New York Mercantile Exchange.

4/29/2009 10:00 AM MADLEN READ AP Business Writer NEW YORK