Oct. 29 (Bloomberg) -- U.S. stocks rallied, snapping a four-day losing streak for the Standard & Poor’s 500 Index, after the economy returned to growth following the worst contraction in seven decades. Treasuries dropped and the dollar and yen weakened, while commodities rose. Caterpillar Inc., Alcoa Inc. and American Express Co. jumped at least 2 percent after the Commerce Department said gross domestic product grew at a 3.5 percent pace from July through September after shrinking for four straight quarters. Motorola Inc., Procter & Gamble Co., Newmont Mining Corp. and Kellogg Co. climbed on better-than-estimated earnings. The S&P 500 increased 1.2 percent to 1,054.62 at 10:38 a.m. in New York. The Dow Jones Industrial Average added 82.75 points, or 0.9 percent, to 9,845.44. The MSCI AC World Index, a measure of developed and emerging markets, rose 0.9 percent as it gained for the first time in eight days. Five stocks advanced for each that fell on the New York Stock Exchange. “The stock rally is not over yet,” said Jeffrey Kleintop, who helps oversee about $247 billion as chief market strategist at LPL Financial in Boston. “The stock market can celebrate. This news is an important confidence boost, in particular to individual investors.” The growth in GDP topped the median estimate of 3.2 percent in a Bloomberg survey of economists and eased concern that an almost eight-month rally in equities outpaced the prospects for recovery. U.S. stocks extended a global slump yesterday as an unexpected decline in new-home sales exacerbated those concerns. The S&P 500 has surged 55 percent from a 12-year low on March 9, yet slipped 4.3 percent from this year’s high on Oct. 19. ‘More Interest’ “GDP numbers were good and will stimulate more investor interest in stocks,” said Randy Bateman, who oversees $13 billion as chief investment officer at Huntington Asset Advisors in Columbus, Ohio. “We can’t declare victory yet. Maybe it was more pronounced because of the success of cash-for-clunkers program. I believe we are not going to double dip, but maybe we’ll see a lesser number in the fourth quarter.” The return to growth also fueled speculation that the Federal Reserve will begin to discuss lifting its benchmark interest rate from a record low range near 0 percent and further unwind other programs meant to stimulate the economy. European Central Bank council member Axel Weber signaled the bank may start to withdraw its emergency stimulus measures next year. The Fed has already announced a phase-out of some of its programs and will complete its $300 billion Treasury purchase program today. Norway and Australia have started to raise interest rates. ‘Tug-of-War’ “It’s a tug-of-war,” said Michael Binger, a Minneapolis- based fund manager at Thrivent Asset Management, which oversees about $60 billion. “We’ve had a stronger-than-expected GDP number, decent housing figures and corporations are running more efficiently. But I don’t see the government reversing the stimulus measures or the Fed changing language or indicating higher interest rates any time soon. The unemployment rate is still very high.” Motorola gained 9.2 percent to $8.69. The biggest U.S. mobile-phone maker reported third-quarter profit excluding some costs of 2 cents, exceeding the average estimate for a breakeven quarter in a Bloomberg survey. Motorola cut jobs and production costs to offset slumping handset sales. Procter & Gamble added 4.5 percent to $59.80. The world’s largest consumer-products company reported first-quarter profit that topped the average analyst projection after price increases helped offset volume declines. Procter & Gamble also raised its full-year forecast for organic sales growth. Earnings Surprises Kellogg rose 1.6 percent to $50.93. The largest U.S. maker of breakfast cereal said it had third-quarter profit of 94 cents a share. The company was forecast by analysts to earn 85 cents, based on the average estimate from a Bloomberg survey. Akamai Technologies Inc. had the biggest gain in the S&P 500, climbing 12 percent to $22.58. The provider of software that makes Web sites load faster said it expects sales of at least $217 million in the fourth quarter. That exceeded the average estimate of $212.1 million from analysts in a Bloomberg survey. Symantec Corp. jumped 10 percent to $17.32. The biggest maker of security software reported second-quarter profit that topped analysts’ estimates after winning back customers from competitors and adding new business users. Profit Analysis Earnings-per-share have topped estimates at 83 percent of the companies in the S&P 500 that posted third-quarter results so far, which would be a record proportion for a full quarter according to Bloomberg data going back to 1993. Still, profits have decreased 23 percent on average for the 292 companies that reported since Oct. 7. U.S. stocks also gained after the number of Americans collecting unemployment insurance fell more than forecast to the lowest level in seven months. The number of people receiving jobless benefits declined by 148,000 to 5.8 million in the week ended Oct. 17, the lowest since March 21 and biggest weekly drop since July, Labor Department figures showed. Indexes of raw-material producers and energy companies rose at least 1 percent as crude oil, gold and industrial metals gained after the GDP data. Crude oil for December delivery gained as much as 2.3 percent to $79.01 a barrel. Gold rebounded from a three-week low, while copper climbed for the first time this week. Commodities prices also rose after the dollar declined 0.5 percent against an index of six major currencies. Newmont Gains Newmont Mining added 2.8 percent to $42.67. The largest U.S. gold producer reported third-quarter profit of 79 cents a share on higher bullion prices and lower production costs. The results topped the 55-cent per-share average estimate of 17 analysts. Exxon Mobil Corp. had the biggest drop in the Dow average, falling 2.2 percent to $72.23. The largest U.S. company reported third-quarter net income of 98 cents a share, 4 cents lower than the average of 15 analyst estimates compiled by Bloomberg. Demand slumped for fuels to run cars, trucks, factories and airplanes. First Solar Inc. slumped 18 percent to $124.68. The world’s largest maker of thin-film solar power modules reported sales of $480.9 million in the third quarter, trailing the average analyst estimate by 9.3 percent, according to Bloomberg data. The rally in global stocks has failed to convince investors and analysts that it’s time to take on more risk or dispel their concerns about U.S. economic policies and its banking system. Bullishness Subsides Only 31 percent of respondents to a poll of investors and analysts who are Bloomberg subscribers in the U.S., Europe and Asia see investment opportunities, down from 35 percent in the previous survey in July. Almost 40 percent in the latest quarterly survey, the Bloomberg Global Poll, say they are still hunkering down. U.S. investors are even more cautious, with more than 50 percent saying they are in a defensive crouch. The U.S. economy faces “serious bumps” ahead that are likely to slow the pace of growth, Nobel prize-winning economist Joseph Stiglitz said. The world’s largest economy won’t be expanding quickly enough to reduce unemployment, Stiglitz told a press conference in Beijing today. The S&P 500 closed below its average level over the past 50 days for the first time since July yesterday, indicating the benchmark for U.S. stocks may extend its retreat from a one-year high. The index fell almost 2 percent to 1,042.63 yesterday, 0.7 percent below its 50-day moving average of 1,050.282 “A close below the 50-day moving average is certainly a negative sign,” said John Murphy, chief technical analyst at Redmond, Washington-based StockCharts.com. “If it’s broken, it simply indicates the market is going into somewhat of a deeper correction.” To contact the reporter on this story: Rita Nazareth in New York at rnazareth@bloomberg.net.

Source