NEW YORK – A sharp slowdown in economic growth propelled stocks higher Friday as the government's latest gross domestic product reading fed hopes for an end to interest rates hikes. The major indexes finished the week with a solid advance.
The Dow gained 119.27, or 1.07 percent, to 11,219.70. The Dow jumped 230 points on Monday and Tuesday, and posted its best weekly point gain since May 2005.
Broader stock indicators also advanced. The Standard & Poor's 500 index added 15.35, or 1.22 percent, to 1,278.55, and the Nasdaq composite index climbed 39.67, or 1.93 percent, to 2,094.14.
Investors bid shares higher after the Commerce Department said GDP growth tailed off by more than half to a 2.5 percent annual rate during the second quarter. The weaker-than-expected reading reinforced beliefs that the Federal Reserve may not need to hike interest rates further.
Wall Street's optimism overcame signs of rising inflation. The GDP report also said core consumer prices — excluding energy and food — surged 2.9 percent last quarter, while employment costs rose a stronger-than-expected 0.9 percent.
While investors have been spooked by any hint of rising prices, they likely set aside the GDP's inflation component because recent reports have shown a more benign trend, said Jeff Kleintop, chief investment strategist for PNC Financial Services Group. But he was uncertain if an anxious market would continue building on these gains.
"The catalysts needed to move this market one way or the other probably won't come until the fourth quarter," Kleintop said, citing events such as a definitive stance on interest rates, corporate guidance in a slower economy and developments in political conflicts overseas.
Advancing issues outpaced decliners by more than 4 to 1 on the New York Stock Exchange.
The economic data lifted bonds, with the yield on the 10-year Treasury note sliding to 4.99 percent from 5.04 percent late Thursday. The dollar extended its losses to the yen; gold prices rose to more than $645 an ounce.
Oil prices plunged as energy traders took profits from recent gains on worries about political tension in the Middle East and Nigeria. A barrel of light crude lost $1.24 to $73.30 on the New York Mercantile Exchange.
The major indexes logged solid gains for the week, as corporate and economic news calmed investors' anxiety. Spectacular earnings signaled that businesses were still faring well despite higher lending costs and energy prices, while mild economic data pared the chances of more interest rate increases.
For the week, the Dow jumped 3.23 percent, the S&P 500 gained 3.08 percent and the Nasdaq climbed 3.65 percent.
Analysts, however, say erratic trading should continue until the Fed's Aug. 8 meeting on interest rates. The market has been nervous about the central bank's ability to peg rates where they will curb inflation but preserve economic growth.
"While market volatility will likely continue going forward, the outlook for investors continues to warrant a moderately bullish stance," Tim Swanson, chief investment officer of the National City's Private Client Group, wrote in a note to clients.
GDP growth was expected to slow from a brisk 5.6 percent annual rate in the first quarter, but the number came in below economists' forecast of 3 percent.
Although the Commerce Department's employment cost index topped estimates for an 0.8 percent increase, Kleintop said investors perhaps were more focused on the longer-term downward trend in the amount companies were paying for employee benefits.
The University of Michigan's consumer sentiment index for July lost 0.2 points to 84.7. However, the report also showed Americans were increasingly upbeat about the economic outlook despite high gasoline prices and lending costs.
Wal-Mart Stores Inc. (WMT) gained on news that the discount retailer plans to sell its 85 stores in Germany to Metro AG. Wal-Mart rose 93 cents to $44.46.
Chevron Corp. (CVX) posted its best-ever quarterly profit, which rose 18 percent but fell short of Wall Street estimates. Its earnings capped a round of stellar results from oil companies. Chevron lost $1.68 to $66.05.
Oil services company Baker Hughes Inc. (BHI) also saw its earnings skyrocket from the sale of its stake in WesternGeco. Baker Hughes nonetheless fell $2.95 to $77.90.
Overseas, Japan's Nikkei stock average added 1.07 percent. Britain's FTSE 100 rose 0.77 percent, Germany's DAX index gained 0.82 percent and France's CAC-40 was higher by 0.55 percent.
On the NYSE, volume of 1.69 billion shares trailed the 1.83 billion shares that changed hands Thursday.
The Russell 2000 index of smaller companies rose 14.34, or 2.09 percent, to 700.03.