Feb 26, 2005 4 min read

By Michael J. Martinez AP Business Writer

NEW YORK (AP) – Stronger-than-expected growth in the nation’s gross domestic product pushed stocks higher for a second straight session Friday as investors welcomed the benefits of an improving economy and looked past the possibility of higher inflation.

Investors were generally pleased with the latest GDP data, which showed the economy growing at an annualized rate of 3.8 percent in the fourth quarter, up from last month’s 3.1 percent estimate from the Commerce Department and better than economists’ 3.5 percent forecast.

However, some analysts and investors remained concerned that stronger economic growth would lead to faster and more aggressive interest rate hikes from the Federal Reserve to combat inflation.

“The lingering fear in the market right now is the Federal Reserve, because they are in a process of moving rates higher, but nobody knows really how far,” said Joseph Keating, chief investment officer at AmSouth Asset Management. “But if you look at today’s data, for example, you see that the economy is in good shape, fundamentals are sound. What’s not to like about the stock market? We just have to get past these fears.”

In midafternoon trading, the Dow Jones industrial average rose 65.47, or 0.6 percent, to 10,814.26.

Broader stock indicators were moderately higher. The Standard & Poor’s 500 index was up 8.84, or 0.7 percent, at 1,209.04, and the technology-focused Nasdaq composite index gained 6.25, or 0.3 percent, to 2,057.95.

The GDP helped the dollar gain ground against the euro for the first time this week, though the dollar remained mixed against other currencies. The bond market edged higher on the news, with the yield on the 10-year Treasury note slipping to 4.27 percent.

Crude oil futures – which rose substantially earlier this week as the dollar tumbled – fell slightly after the GDP report. A barrel of light crude was quoted at $51.55, up 16 cents, on the New York Mercantile Exchange.

Oil stocks rallied, resuming their place at the forefront of the market. Exxon Mobil Corp. was up $2.02 at $63.15, while ChevronTexaco Corp. added $1.36 to $62.52 and ConocoPhilips climbed $3.37 to $113.55.

“You’ve seen energy stocks taking off while technology stocks have been lagging since mid-December,” said Ken Tower, chief market strategist for Schwab’s CyberTrader. “I think if energy stocks are going to lead the market, then tech stocks won’t be. Energy stocks represent higher consumer prices, and that will cause technology stocks to suffer.”

Qwest Communications International Inc. fell 29 cents to $3.91 after MCI Inc. said it would look at Qwest’s improved $8 billion offer, which included a provision to guarantee the stock portion of its bid, but that it was still standing by its $6.7 billion agreement to merge with Dow component Verizon Communications Inc. Verizon climbed 72 cents to $36.22.

MCI lost 55 cents to $22.26 after reporting a loss of 10 cents per share for the fourth quarter. Excluding one-time charges, however, the company beat Wall Street’s profit and revenue forecasts.

The Wall Street Journal reported Friday that the boards of directors for Federated Department Stores Inc. and May Department Stores Co. would meet in the next few days to finalize Federated’s bid for its struggling rival, valued at more than $10 billion. Federated fell 97 cents to $56.04, while May rose $1.25 to $35.10.

In earnings news, The Gap Inc. added 16 cents to $21.44 after the clothing retailer beat Wall Street’s fourth-quarter profit expectations by 3 cents per share. The company said it would also double its annual dividend.

Department store chain Kohl’s Corp. beat analysts’ forecasts by a penny per share in the fourth quarter, crediting stronger sales and higher margins. Kohl’s gained $1.70 to $47.60.

Advancing issues outnumbered decliners by about 9 to 4 on the New York Stock Exchange, where volume came to 954.08 million shares, compared with 935.78 million at the same point on Thursday.

The Russell 2000 index of smaller companies was up 5.98, or 1 percent, at 633.54.

Overseas, Japan’s Nikkei stock average rose 1.1 percent. In Europe, Britain’s FTSE 100 closed up 0.7 percent, France’s CAC-40 climbed 1.43 percent for the session, and Germany’s DAX index gained 1.03 percent in late trading.

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AP-ES-02-25-05 1614EST