Wall St up despite US growth warning

Wall Street advanced, with gains tempered by expectations that Congress will not act to stop automatic federal spending cuts that are widely expected to put the brakes on the pace of expansion in the world's largest economy.

The International Monetary Fund warned it will downgrade its economic forecast for the US if US$85 billion of schedule federal spending cuts take effect on March 1.

If all cuts go ahead, the IMF would lower its current estimate for a 2 per cent expansion for US gross domestic product this year by at least 0.5 per cent, IMF spokesman William Murray told reporters at a news briefing. Global growth also would be hit.

In afternoon trading in New York, the Dow Jones Industrial Average rose 0.14 per cent, the Standard & Poor's 500 Index gained 0.18 per cent, while the Nasdaq Composite Index climbed 0.37 per cent.

Expectations of a slowdown in the pace of growth buoyed US Treasuries.

Commerce Department data released today showed GDP expanded at an annual rate of 0.1 per cent in the final three months of 2012, compared with a previously estimated 0.1 per cent contraction. That was below the 0.5 per cent growth forecast by economists polled by Reuters.

"It's pretty well baked into the cake that no action is likely to be taken on the sequestration tomorrow," Thomas Simons, a government debt economist in New York at Jefferies Group, one of 21 primary dealers that trade with the Fed, told Bloomberg. "GDP was weaker than expected. It's nice to see the negative sign go away, but it's still pretty weak."

The negative sentiment was offset by the latest news on the labour market. Applications for jobless benefits surprisingly dropped 22,000 last week to 344,000. Economists polled by Reuters had expected first-time applications to fall to 360,000.

Shares of JC Penney sank, last down 14 per cent, after the company reported a net loss of US$552 million in the quarter ended February 2, compared with US$87 million a year earlier.

In Europe, the Stoxx 600 Index finished the day with a 1 per cent gain from the previous close. The index has advanced for the ninth straight month and is up 3.7 per cent so far this year, according to Bloomberg.

Good news on Europe's largest economy helped as German unemployment posted a surprise drop February.

Benchmark stock indexes rose in Frankfurt and Paris, both advancing 0.6 per cent, while the UK's FTSE 100 added 0.6 per cent.

The political impasse in Italy remains a concern for all of Europe. In Berlin, Italian President Giorgio Napolitano said the formation of a new government would take time and that it's important to keep in mind that the Monti government remains in office for now.