Stocks higher after economy grows 5.7 pct in 4th quarter; fastest pace in 6 years

more images

more images

Stocks rise after better-than-expected GDP report

NEW YORK — Stocks were mostly higher Friday after the government’s gross domestic product report showed that the economy grew at its fastest pace in six years.

The market was heading toward a loss for January on the last trading day of the month. The Dow Jones industrial average was up 9 points Friday, but the Nasdaq composite index fell as technology shares were hurt by disappointing earnings reports.

The Commerce Department said GDP expanded at an annual rate of 5.7 percent during the fourth quarter, easily topping economists’ forecast of 4.5 percent.

The strong GDP growth, coupled with an upbeat report on manufacturing in the Midwest, reassured investors that the economy is continuing its recovery. It also put a stop — at least temporarily — to a sell-off that began last week over worries that China was trying to limit its economic growth and that Washington was planning a major overhaul of banking regulations. Shares have fallen sharply since hitting a 15-month high last week.

The GDP report showed that consumer spending increased and there was a sharp jump in business spending on equipment and software. However, some economists noted that it will difficult for the nation to sustain the fourth quarter’s pace because much of the growth came from companies replenishing low inventories. Rebuilding inventories tends to create just a temporary bump in economic growth.

Michael Sheldon, chief market strategist at RDM Financial Group said that the report “is going to leave doubts” in the minds of investors who are looking for consistent economic improvement.

Meanwhile, the Chicago Purchasing Managers Index rose more than expected, providing the latest evidence the manufacturing sector, at least in the Midwest, is rebounding as well. The Chicago PMI climbed to 61.5 in January from 58.7 last month. Economists were expecting a reading of 57.5 for January.

The Chicago report is seen as a precursor to the national Institute for Supply Management report that is due out Monday.

In early afternoon trading, the Dow rose 8.91, or 0.1 percent, to 10,129.37. The Standard & Poor’s 500 index fell 1.18, or 0.1 percent, to 1,083.35, while the Nasdaq composite index fell 8.58, or 0.4 percent, to 2,170.42, lagging the other indicators following a disappointing earnings report from Microsoft Corp.

While the economic news was reassuring, the market is still wary about government plans to increase the regulation of banks. President Barack Obama’s calls last week to restrict the size of banks and to limit risky trading by big financial institutions helped spark the sell-off in stocks. Since first announcing the plan, Obama has provided few specifics about how far the restrictions would go in limiting bank trading.

“Political uncertainty always gets people nervous,” said Peter Zuger, co-portfolio manager of the Touchstone Mid Cap Value fund.

The unknowns coming out of Washington have helped stall a rally that sent stocks climbing for 10 months and sent the S&P 500 up 60.3 percent. But one political worry was put to rest Thursday when Federal Reserve Chairman Ben Bernanke won Senate confirmation for a second term.

Advancing stocks outnumbered decliners by about 3 to 2 on the New York Stock Exchange, where volume came to 440.3 million shares, compared with 391 million traded at the same point Thursday.

Fourth-quarter earnings reports continued, and extended the pattern of mixed results among the companies that have already reported.

Microsoft said late Thursday it beat analysts’ expectations, but the company reported slow spending on software by corporations. The company’s stock fell 80 cents, or 2.7 percent, to $28.36.

Bond prices dipped Friday. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.65 percent from 3.64 percent late Thursday.

The dollar rose against other major currencies, while gold prices fell.

The Russell 2000 index of smaller companies rose 2.05, or 0.3 percent, to 609.98.

Overseas markets were mixed. Asian stocks stumbled on disappointing company forecasts and Toyota’s recall of millions of cars, while Europe’s major indexes rose following a report that showed inflation remained relatively benign in the 16 countries that use the euro and the strong U.S. GDP report. Low inflation paves the way for the European Central Bank to keep its key interest rate as a historic low of 1 percent.

Japan’s Nikkei stock fell 2.1 percent, while Hong Kong’s Hang Seng dropped 1.2 percent. Britain’s FTSE 100 rose 0.8 percent, Germany’s DAX index gained 1.2 percent, and France’s CAC-40 climbed 1.4 percent.