Bond Prices, Stocks Post Late Gains --- Middle East Signals Counter Early Drop Due to GNP Data
NEW YORK -- Signals that war isn't inevitable in the Middle East sent stock and bond prices surging, more than wiping out early declines that were sparked by surprising economic news.</br></br>The Dow Jones Industrial Average ended 17.82 points higher to 2448.02, after being down as much as 20 points in midmorning. Long-term U.S. Treasury bond prices gained 1/8 point, or $1.25 for each $1,000 of face amount, following a 1/4-point morning drop.</br></br>Stronger-than-expected economic growth was reported for the third quarter, and both stocks and bonds slid in reaction. That is because investors concluded the news might dissuade the Federal Reserve from cutting interest rates further, said Thomas Mudge, market analyst at Bailard Biehl & Kaiser, a money manager based in San Mateo, Calif. The Fed cut the key federal funds rate by 1/4 percentage point on Monday.</br></br>Besides surprise, the news that the economy grew 1.8% in the third quartertwice as much as expectations -- also generated skepticism. Analysts cited extremely negative readings in recent consumer confidence surveys and the expectation that October jobs data, scheduled for release Friday, will show unemployment continuing to rise.</br></br>"The question is," said Mr. Mudge, was last quarter's economic growth "really that strong, or is it a big fakeout? With all the cross currents, what you get is investor paralysis."