NEW YORK Wall Street extended its advance Thursday after a better-than-expected reading on the nation's economy and a drop in jobless claims gave investors some reassurance that the economy is holding up. The major indexes rose about 1 percent, including the Dow Jones industrial average, which gained nearly 200 points.
A decline in oil prices also appeared to add force to the rally in stocks. But volume was again light heading toward the Labor Day weekend, helping to exaggerate price moves.
The Commerce Department's report that gross domestic product rose at an annual rate of 3.3 percent for the April-June period helped punctuate a week of generally upbeat economic readings that have left guarded investors somewhat optimistic. The weaker dollar that helped boost U.S. exports pushed GDP growth beyond the government's initial estimate of a 1.9 percent as well as economists' forecast of 2.7 percent.
The increase came as the government handed out rebate checks to taxpayers. It marked the economy's best performance since the third quarter of last year, when GDP rose at a 4.8 percent pace.
Investors are watching GDP, the best barometer of the economy's well-being, to look for signs that growth is picking up after being pounded by housing woes and a debilitating credit crisis. The economy grew at a weak rate of 0.9 percent in the first quarter and actually shrank in the last three months of 2007.
Also Thursday, the Labor Department said the number of newly laid off people seeking jobless benefits fell for the third straight week. The number of claims dropped to a seasonally adjusted 425,000, down 10,000 from the previous week. That was slightly better than the 427,000 expected by analysts surveyed by Thomson/IFR.
But some economists consider claims above 400,000 an indicator of a slowing economy. Companies have cut jobs every month this year as they grapple with rising energy costs and tighter credit.
"We didn't get a whole lot of new information," said Charlie Smith, chief investment officer at Fort Pitt Capital Group in Pittsburgh, referring to the reports. He noted that volume was light.
"Exaggerated reactions tend to happen when you have thin trading," he said.
In midafternoon trading, the Dow rose 190.20, or 1.65 percent, to 11,692.71 after rising more than 115 points over the past two sessions following better-than-expected reading on consumer confidence and manufacturing. Still, for the week, stocks are essentially flat after a big decline Monday on credit worries.
Broader stock indicators also rose. The Standard & Poor's 500 index advanced 16.13, or 1.26 percent, to 1,297.79, and the Nasdaq composite index rose 28.84, or 1.21 percent, to 2,411.30.
Bonds fell as investors moved into stocks. The yield on the benchmark 10-year Treasury note, which moves opposite its price, rose to 3.79 percent from 3.77 percent late Wednesday. The dollar rose against other major currencies, as did gold prices.
"This is an environment in which we're likely to get a lot of head-fakes both on the upside and the downside," said Bill Urban, principal with San Francisco-based Bingham, Osborn & Scarborough, referring to economic data. He noted that the initial reading on the fourth quarter last year had been positive before revisions revealed the economy contracted.
"This is just sort of data that trickles out that can be very positive one day and negative the next. We don't yet think it signals a trend," he said.
Investors are watching oil prices as Tropical Storm Gustav churns toward the Gulf of Mexico on a course that could collide with oil and gas platforms. But strength in the dollar helped drive down the price of oil.
Light, sweet crude fell $2.56 to settle at $115.59 on the New York Mercantile Exchange.
The decline in oil made energy stocks one of the few areas of weakness Thursday.
Devon Energy Corp. fell $4.18, or 3.9 percent, to $102.60, while Hess Corp. fell $2.37, or 2.2 percent, to $104.77.
In corporate news, Sears Holdings Corp. said its second-quarter profit fell 62 percent as weak consumer spending continues to hamper store sales. The retailer earned $65 million, or 50 cents per share, in the three-month period ended Aug. 2. That compares with $173 million, or $1.15 per share, in the year-ago period. The stock rose $2.38, or 2.7 percent, to $89.36.
Tiffany & Co. jumped $4.31, or 11 percent, to $43.92 after reporting that its second-quarter profit doubled as sales rose by double-digit percentages in Asia and Europe.
Zale Corp. forecast a fiscal 2009 profit above what Wall Street had expected, though it warned that same-store sales may decline. The specialty jeweler also reported a fiscal fourth-quarter loss as it continued reducing inventory levels. Zale rose $4.89, or 21 percent, to $28.04.
Investors have been looking to retailers' results for information not only about the companies, but about consumers' ability to spend. Several upbeat reports Wednesday from retailers helped buoy Wall Street's confidence in the economy.
Advancing issues outnumbered decliners by about 3 to 1 on the New York Stock Exchange, where volume came to 598.7 million shares.
The Russell 2000 index of smaller companies rose 13.28, or 1.81 percent, to 746.23.
Overseas, Japan's Nikkei stock average rose 0.12 percent. Britain's FTSE 100 rose 1.32 percent, Germany's DAX index fell 1.57 percent, and France's CAC-40 jumped 2.02 percent.