Bonds Rally on Inflation Report
Stocks ended a three-session losing streak Friday as a bond market rally resumed with help from an economic report that further validated forecasts for steady growth without inflation.
The dollar ended higher against the pound on a report that Britain may join Europe’s economic and monetary union after it gets underway in 1999.
The Dow Jones industrial average rose 74.17 points to 7,922.18, enough to give the barometer of 30 blue-chip companies a small gain of 4.91 points for the week.
But typifying the indecisive mood that handcuffed the market all week, the Dow gained most of its ground in the opening minutes and then locked into a tight range for the remainder of the session.
Broader stock indicators also put in their best performance in four sessions, as bonds rebounded from Thursday’s stumble, sending interest rates lower.
Bonds rose Friday morning after the government’s latest calculation of second-quarter economic activity unexpectedly revealed a slower rate of growth than earlier estimates.
“Once again, slow and steady wins the race with an economy that’s moving, but not generating inflation,” said John Lynch, director of investment strategy at Interstate/Johnson Lane in Charlotte, N.C.
The Commerce Department report said gross domestic product grew at a 3.3% annual rate in the April-June quarter, down from an estimated 3.6%.
The revised tally represents a more substantial drop from the 4.9% rate recorded in the first quarter, a sizzling pace that led the Federal Reserve Board to raise one of its key lending rates in late March to help ease consumer spending and other inflationary pressures.
The markets had retreated Thursday after a series of robust economic readings stoked worries the Fed may intervene again, potentially slowing company profits in the process.
Financial concerns, which enjoy a stronger lending business when interest rates aren’t rising, were among the day’s best performers.
J.P. Morgan rose $2.81 to $113.94, and American Express rose $1.69 to $81.63 to lead the Dow, which also drew a boost from 3M, up $2.63 to $90.44.
The Standard & Poor’s 500-stock index rose 7.31 points to 945.22, the NYSE composite index rose 3.68 points to 495.20, and the Nasdaq composite index rose 3.35 points to 1,682.24.
The Russell 2,000 index of smaller companies rose 0.96 point to 448.88, and the American Stock Exchange composite index rose 4.60 points to 689.84.
The dollar staged its biggest gain against sterling in two months after an unidentified cabinet minister told the Financial Times the British government is more eager to join Europe’s single currency, or euro, than it was several months ago.
The pound tumbled 1.34% versus the dollar, to $1.6079 from $1.6299 on Thursday, its largest one-day decline since July 28. It also fell to 2.8303 marks from 2.8698 marks, its biggest one-day drop against the German currency in six weeks.
The dollar was little changed at 121.26 yen from 121.13 yen.
Oil prices rose as concerns spread about supplies being affected by a storm in the Gulf of Mexico and by Iraqi tensions just as heating oil demand starts to pick up for the winter.
Overseas, Tokyo’s Nikkei average fell 1.9%, Frankfurt’s DAX index fell 1.6% and London’s FTSE-100 rose 3.2% to a record.
