Surprise US growth buoys market
STOCKS extended their gains in early afternoon trade after crucial data out of the US showed the world's largest economy was holding up far better than feared.
The blue-chip FTSE 100, sapped in early trade by heavy losses overnight on Wall Street, put on 84.8 at 5088.4 as investors bet the stronger-than-expected gross domestic product data would spark an early rally in US markets.
US GDP shrank 0.4% in the third quarter, its first decline in eight years and its largest in more than ten. The performance reflected a sharp pullback in spending by consumers, which slowed to the weakest pace in more than eight years, and a continued plunge in investment by businesses in new plants and equipment.
But economists had predicted a drop of 1%, a figure that would confirm fears of recession. 'It's sort of a sigh of relief,' said Eric Nickerson, chief currency strategist with the Bank of America in New York. 'The market was bracing for a -1.0 figure, and this looks a little encouraging. But keep in mind...everything still portends for a rather ugly fourth quarter.'
Pundits hoped the data would help boost sentiment on Wall Street when trading begins later this afternoon. But the strength of the data may scupper hopes of further cuts in US interest rates - which some had expected could be announced by the Federal Reserve next week.
America's central bank has already cut interest rates nine times this year in an attempt to revive the economy. They are currently at 2.5%, the lowest since 1962. Investors are hoping lower rates and increased government spending will spark a rebound in 2002.
