Shares Rise Despite News of Slowdown

Stocks posted strong gains yesterday despite new evidence of an economic slowdown as investors were encouraged that the contraction was not as large as had been predicted.

The Dow Jones industrial average shot up nearly 200 points after the Commerce Department reported that the nation's economy shrank by an annual 0.3 percent pace in the third quarter, the sharpest reduction in seven years. Economists had expected a drop of 0.5 percent.

Except for a brief dip, the Dow traded in positive territory most of the day and edged slightly lower than its session high to close up 189.73, or 2.1 percent, at 9180.69. The Standard & Poor's 500-stock index rose 2.6 percent, or 24 points, to 954.09, and the Nasdaq composite index increased 2.5 percent, or 41.31, to 1698.52.

"It didn't come as a surprise -- we've all known that consumers are cutting back," said Stuart Schweitzer, global market strategist at J.P. Morgan Private Bank. "In the bottoming process, one of the things markets tend to do is go up on bad news. That's the market's way of saying it's digested the big problems."

The Labor Department also reported yesterday that new unemployment-benefits claims for the week ended Oct. 25 were flat compared to the previous week. The total number of people claiming benefits fell 12,000, to 3.72 million.

Although yesterday's trading was calm compared with previous erratic sessions, analysts are bracing for more volatility, said Mike Gibbs, a managing director at Morgan Keegan in Memphis. "Just the simple gyrations show you that no one knows what they really want to do," he said, adding that he expects more swings now that investors are paying more attention to the overall economy rather than the credit crisis. "That's typical of a time when investors are confused."

Investors have largely ratcheted down their expectations for companies' performance in the coming months in the wake of poor earnings reports.

But Exxon Mobil bucked that trend. It said its third-quarter profit rose 58 percent on soaring summertime crude oil prices, breaking its own record for quarterly profit by a U.S. company.

Big gains by overseas markets helped set the tone of yesterday's session. Foreign investors were heartened by the Federal Reserve's move on Wednesday to cut its key interest rate.

Central banks in China, Hong Kong and Taiwan followed suit, and the Bank of Japan, the European Central Bank and the Bank of England may do the same next week.

Hong Kong's Hang Seng stock index soared 12.8 percent, a record one-day gain. In Japan, the Nikkei average rose nearly 10 percent.