US stocks: Markets rally on GDP growth and techs

NEW YORK - US stocks gained on Thursday as the latest growth data suggested the economy was buoyant but not expanding so fast it would increase inflation fears.

The Nasdaq resumed its climb, after Wednesday's dip, to end near its three-month high. The Dow Jones industrial average closed at its highest level in almost two months.

Home builder stocks performed well after Toll Brothers Inc. raised its profit forecast for the year. Caterpillar Inc. helped lead the Dow higher, the day after Chief Executive Officer Jim Owens called US business confidence "very strong" at the Reuters Manufacturing Summit.

Tech shares also rose as investors looked ahead to second-half sales of new products. Intel Corp. and Apple Computer Inc. posted gains.

Owen Fitzpatrick, head of the US equity group at Deutsche Bank Private Wealth Management, of New York, said of the tech interest: "Valuation levels are reasonable, and we're seeing some signs that things have stabilized, in terms of improved order growth and inventories coming down."

The Dow Jones industrial average gained 79.80 points, or 0.76 per cent, to end at 10,537.60. The Standard & Poor's 500 Index gained 7.61 points, or 0.64 per cent, to close at 1,197.62. The technology-laced Nasdaq Composite Index gained 21.12 points, or 1.03 per cent, to 2,071.24.

The Commerce Department reported that US gross domestic product was up 3.5 per cent in the first quarter, up from the previously reported annual rate of 3.1 per cent.

The pace of economic growth is important to Wall Street. Too slow, and investors worry profits will suffer. Too fast, and they fear the Federal Reserve will step up its campaign of interest-rate hikes, again crimping profits.

Todd Leone, head of listed trading at S.G. Cowen, of New York, said the figures suggest the Fed could be near the end of its campaign of interest-rate hikes that began last June.

"With inflation under control, people are feeling rates are getting to the top of where the Fed wants them to be," Leone said.

In the home builder sector, shares of Toll Brothers gained 6.9 per cent, or US$5.92, to US$91.65 on the NYSE.

Some of its competitors' stocks also rallied. Hovnanian Enterprises Inc. shares were up 5.2 per cent, or US$3.03, to US$61.38 and Beazer Homes USA stock rose 5.2 per cent, or US$2.68, to US$53.85.

Heavy equipment maker Caterpillar rose 2.1 per cent, or US$1.96, on the NYSE to US$94.43.

Among tech shares, Apple, which makes the Macintosh personal computer and the iPod digital music player, was up 2.4 per cent, or 96 cents, at US$40.74. Intel, the world's largest computer chip maker, climbed 1.4 per cent, or 37 cents, to US$27.37 on Nasdaq.

Stocks continued their march upwards despite gains in the price of oil, bucking the trend of the past two weeks, when investors keyed off the decline in oil prices.

Oil for July delivery rose 3 cents to settle at US$51.01 a barrel. That's still far below the record of US$58.28 hit on April 4 by a leading US crude futures contract.

"People have definitely gotten comfortable with oil at US$50 a barrel, give or take US$5," said Tim Heekin, director of trading at Thomas Weisel Partners, of San Francisco. "People were saying that it was going to go through US$60 and wasn't going to stop." About 1.29 billion shares changed hands on the New York Stock Exchange, just below the 1.46 billion daily average for last year. About 1.64 billion shares were traded on Nasdaq, below the 1.81 billion daily average last year.

Gaining stocks outnumbered decliners by almost 24 to 9 on the New York Stock Exchange and by 7 to 3 on Nasdaq.

- REUTERS