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U.S. stocks rebound on better GDP report, Fed comments

By Sonja Ryst
Washington Post Staff Writer
Friday, August 27, 2010; 11:03 PM

U.S. stocks jumped Friday, recovering some of the week's losses, as investors were encouraged by better-than-expected news about economic growth and a renewed commitment from the Federal Reserve to intervene should the economy take a turn for the worse.

The Dow Jones industrial average rose 164.84 points, or 1.7 percent, to close at 10,150.65, while the broader Standard & Poor's 500-stock index climbed 17.37, or 1.7 percent, to 1064.59.

Federal Reserve Chairman Ben S. Bernanke said in a closely watched speech Friday that the central bank would take new action to boost the economy only if conditions worsened. He also called it "reasonable to expect some pickup in growth in 2011 and in subsequent years," during an address at the Federal Reserve Bank of Kansas City's annual economic symposium.

For weeks, investors have been dour and jittery over an economic recovery that is showing increased signs of weakness. Many on Wall Street have looked to the Fed for clearer signals about the economy, but been disappointed.

After Bernanke signaled two weeks ago during congressional testimony that the central bank would be open to taking additional steps to bolster the economy, the market tumbled for days and investors wondered if Bernanke had lost confidence in the recovery.

On Friday, analysts pointed to Bernanke's speech as a key reason that the markets rose.

"The market is relieved that Bernanke is signaling that the economy is going through a soft patch but not a double dip," said Peter Cardillo, chief economist at Avalon Partners.

Stocks were also lifted by slightly stronger-than-expected data on economic growth during the second quarter. In a revised estimate issued Friday, the Commerce Department said gross domestic product expanded at a 1.6 percent annual rate in the April-through-June period, which is down from an earlier estimate of 2.4 percent but better than the 1.4 percent forecast by analysts surveyed by Bloomberg.

That news followed Thursday's announcement that 473,000 jobless claims were filed in the United States during the week ended Aug. 21, while analysts had forecast there would be 490,000, according to Bloomberg.

After taking those doses of perspective, investors bid shares in Intel up again Friday, even though the Santa Clara, Calif., technology company announced that its third-quarter revenue would be below its previous outlook. Intel's stock price dipped initially but then recovered to close at $18.37, up 1.1 percent from the previous close.

In contrast, when Cisco Systems had disappointed the market Aug. 11 with revenue estimates below analyst forecasts, stock prices suffered.

Investors have sold stocks as they scrutinized various indicators for signs about the economic recovery, and the Dow is down roughly 2.7 percent for the year.

The market took a hit this week after the National Association of Realtors said Tuesday that sales of previously owned homes were sharply lower in July following the expiration of a lucrative government home-buyer tax credit.

For the week, the Dow closed down 0.6 percent, and the S&P 500 finished down 0.7 percent.

"I think the market was ready for good news," said Fred Dickson, chief market strategist at D.A. Davidson & Co. in Lake Oswego, Ore. Traders probably decided to buy beaten-down stocks ahead of the weekend, he said. "While the good news [about Bernanke and the GDP] wasn't great, it was better than expected."

Staff writer Neil Irwin contributed to this report.

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