thank gdp its friday, page-2

best week in over three years S&P 500 has its best week in over three years

Wall Street hopes Fed will stop raising rates as economic growth slows further

By Mark Cotton,
Last Update: 5:30 PM ET Jul 28, 2006


NEW YORK -- U.S. stocks ended sharply higher, with the S&P 500 Index posting its best weekly point gain in over three years, on hopes the Federal Reserve will stop raising interest rates after economic growth slowed more than expected in the second quarter.

Friday's strong finish comes after a week of volatile trading due to a mixed set of quarterly reports. Strong earnings from the likes of Merck, Exxon Mobil and AT&T were offset by disappointing results at Amazon.com Inc, Boeing Co. and UPS.

The Dow Jones Industrial Average rose 119.27 points to 11,219.70, capping what is the best weekly point gain for the index since November 2004. The benchmark index posted a weekly gain of 3.2%, or 351.22 points.

The S&P 500 Index rose 15.35 points to 1,278.55. On the week, the index rose 3.1%, or 38.26 points, its best gain in points since March 2003.
The Nasdaq Composite Index added 39.67 points to 2,094.14. The tech-rich index rose 3.7% on the week, or 73.75 points, its best weekly gain since January.

"The GDP number was softer than expected and it increases the chances that the Federal Reserve will pause in their long string of interest-rate increases when they meet next in August," said Alan Gayle, senior investment strategist at Trusco Capital Management.

But Gayle said the market may begin to worry about "too rapid a deceleration" in economic growth. Gayle noted that the GDP report showed that business investment increased just 2.7% in the second quarter, the lowest quarterly gain since the first quarter of 2004.

The Federal Open Market Committee, the Fed's interest-rate setting body, meets on August 8 to discuss monetary policy and interest rates. Its key fed-funds rate currently stands at 5.25%. On the fed-funds futures market, the odds are now that the central bank will not raise interest rates in the next four months.

On the broader market for equities, advancers outpaced by more than 4 to 1 on the New York Stock Exchange, and by more than 2 to 1 on the Nasdaq.
By sector, semiconductors , Internet stocks brokers , computer hardware stocks , retailers , biotechs and gold stocks were some of the biggest advancers.
Oil services fell as crude-oil prices lost ground.
Volume was 1.68 billion on the Big Board and 1.85 billion on the Nasdaq.

The Commerce Department said the economy grew at a 2.5% pace in the second quarter, down sharply from 5.6% in the first quarter.
At the same time, core inflation rose 2.9% annualized the fastest pace in 12 years. That news, in theory, could keep pressure on the Federal Reserve to keep lifting rates.

The employment cost index rose 0.9%, outstripping analysts' expectations. It was the biggest gain in the employment cost index since the first quarter of 2005.

Also, consumer sentiment was little changed in July, according to media reports of proprietary research from the University of Michigan. The UMich consumer sentiment index inched lower to 84.7 in July from 84.9 in June. The preliminary July index was 83.0. Economists were expecting the index to inch lower to 82.9.

Investors continue to monitor developments in the Middle East, with little reason to hope for a speedy cease-fire or diplomatic breakthroughs. Israeli air strikes against Hezbollah sites continued in southern Lebanon.

Secretary of State Condoleezza Rice has promised to return to the region, but remains in Kuala Lumpur. Earlier in the week she insisted to European colleagues, who disagreed with her, that Israeli forces should be given some time to dent Hezbollah's military strength.

Oil, dollar, gold, bonds

Crude-oil futures fell below $74 a barrel, touching their weakest level in a month, as traders took advantage of gains of more than 1% over the prior two sessions to take some profits ahead of the weekend. The weaker-than-expected GDP report also prompted some traders to review their outlook for U.S. demand for energy products.

The benchmark September contract ended down $1.30 at $73.24 a barrel, its weakest level since June 28. On the week, oil fell 1.6%. See Futures Movers.
The U.S. dollar fell to a more than two-week low versus the Japanese yen, and was also sharply lower against other major currencies on dimming hopes for further interest-rate increases.

The dollar last was down 0.9% at 114.80 yen, as the euro rose 0.5% to $1.2749. Check foreign exchange rates.

Gold futures ended higher as the weakness in the dollar fueled investment interest in the precious metal. Gold for August delivery rose $2.30 to $634.80 an ounce, gaining 2.4% on the week. See Metals Stocks.
The benchmark 10-year Treasury note shot higher after the latest GDP report rekindled hopes for an end to rate hikes. The note ended up 12/32 higher at 101 1/32 with a yield of 5%, down from 5.044% before the report. Prices and yields move in opposite directions.