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The Honolulu Advertiser

Posted at 12:44 p.m., Thursday, May 26, 2005

Stocks boosted by solid economic growth report

By Michael J. Martinez
Associated Press

NEW YORK — Stocks rose yesterday as encouraging signs of economic growth eased investors' fears of a business slowdown.

The economy grew by 3.5 percent in the first quarter of the year — up from a 3.1 percent estimate last month and just slightly less than the 3.6 percent economists had expected. Investors welcomed the report as a sign that the economy was still expanding and inflation risks had lessened.

The news also helped minimize the impact of this week's rise in oil prices, given that energy costs had not dampened first-quarter GDP to a great degree. A barrel of light crude settled at $51.01, up 3 cents, on the New York Mercantile Exchange.

"Oil's going to be slipping and sliding around, but the fact remains it fell nearly $10 from its highs," said Bryan Piskorowski, market analyst at Wachovia Securities. "It's injecting a little caution into the market, but otherwise the GDP number didn't make any waves, kind of in line with what we expected, and we're getting a bounce off it."

The Dow Jones industrial average rose 79.80, or 0.76 percent, to 10,537.60, its best close since April 7.

Broader stock indicators also moved higher. The Standard & Poor's 500 index was up 7.61, or 0.64 percent, at 1,197.62, its highest close since March 15. The Nasdaq composite index gained 21.12, or 1.03 percent, to 2,071.24, its highest level since March 8.

Bonds edged higher after the previous session's sell-off. The yield on the 10-year Treasury note fell to 4.08 percent from 4.09 percent late yesterday. The dollar rose to a new 2005 high against the euro as pessimism over the new European constitution weighed on the 12-nation currency, and the dollar rose against most other currencies as well. Gold prices fell.

Analysts said the GDP report could keep the market from suffering another slump, as it did in April when the Dow nearly fell through 10,000. The economy appears to have achieved a balance between economic growth and inflation that makes it likely the Federal Reserve will continue with its plan to raise interest rates gradually.

"The economy turning in good growth, inflation is moderate — that's a very favorable economic backdrop for the financial markets," said Richard Rippe, chief economist for the Prudential Equity Group. "The Fed isn't quite finished raising rates, but there's nothing in these numbers that say they should get more aggressive in that process."

In corporate news, embattled Dow component General Motors Corp. rose 46 cents to $31.95 after a media report said the company was considering a spinoff or sale of its residential mortgage business that could bring in up to $10 billion. GM called the report speculation.

Costco Wholesale Corp. reported a 6 percent rise in profits, beating Wall Street forecasts by a penny per share. However, the company said its expansion plans could run into trouble due to rising real estate costs and resistance in some cities to having large so-called "big box" retailers. Costco shares were up 7 cents at $45.49.

Shares of luxury home builder Toll Brothers climbed $5.92 to $91.65 after it reported a sharp jump in second quarter earnings that surpassed analysts' expectations by 22 cents per share. The company also boosted its forecasts for its full-year results.

Indonesian airline Lion Air said it would purchase 60 737 jets from Boeing Co. in a deal worth up to $3.9 billion. Boeing also notched a deal with Singapore Airlines for 20 737s with a list price value of $1.1 billion, with an option for 20 more aircraft. Boeing shares rose $1.54 to $62.99.

Rising pork and beef prices ate into Hormel Foods Corp.'s quarterly earnings. The maker of Spam reported a modest 4 percent rise in profits after one-time charges, missing Wall Street's profit forecasts by 2 cents per share. Hormel tumbled 8.2 percent, or $2.67, to $30.08.

Advancing issues outnumbered decliners by nearly 9 to 4 on the New York Stock Exchange, where preliminary consolidated volume came to 1.7 billion shares, compared with 1.76 billion traded yesterday.

The Russell 2000 index of smaller companies was up 8.30, or 1.37 percent, at 614.70.

Overseas, Japan's Nikkei stock average rose 0.12 percent. In Europe, Britain's FTSE 100 was up 0.47 percent, France's CAC-40 climbed 0.9 percent for the session, and Germany's DAX index gained 1.07 percent.