US stocks dip on GDP news

Strong growth in the United States’ gross domestic product spooked investors and sent stocks mostly lower today as the data renewed fears that the Federal Reserve would continue raising interest rates.

Despite the drop, the market ended November with impressive gains.

Wall Street endured a third day of flat-to-lower trading despite a recent string of government reports that have painted an uplifting picture of the economy. The Commerce Department said the GDP rose at a 4.3% annual rate in the July-September quarter, which reinforced the economy’s ability to handle record energy prices following hurricanes Katrina and Rita.

The latest GDP figure, driven by growth in personal spending and business investment, was revised from a preliminary reading of 3.8%, and beat economists’ forecast of 4% growth and a 3.3% advance in the prior quarter.

While the Fed has signalled it might stop rate hikes should the economy weaken, the strong economic data is likely to prompt more rate increases, giving the markets pause after reaching 4½-year highs last week. But analysts said there is still room for stocks to advance.

“We’ve had a great four- to six-week run, and now the economic data has been far better than expected,” said Jack Caffrey, equity strategist for J.P. Morgan Private Bank. “So at this point, seeing the market consolidate here makes perfect sense.”

The Dow Jones industrial average fell 82.29, or 0.76%, to 10,805.87.

Broader stock indicators were mixed. The Standard & Poor’s 500 index lost 8.00, or 0.64%, to 1,249.48, and the Nasdaq composite index rose 0.11, nearly flat, to 2,232.82.

Bonds continued to slip after Monday’s sell-off, with the yield on the 10-year Treasury note rising to 4.50% from 4.48% late Monday. The dollar was mixed against other major currencies, while gold prices retreated.

Crude futures moved higher after dropping to fresh five-month lows earlier in the session. A barrel of light crude settled at US$57.32 (€48.63), up 82 cents, on the New York Mercantile Exchange.

With crude oil futures off of their summer highs and economic data improving, Wall Street enjoyed stellar gains in November. For the month, the Dow gained 3.5%, the S&P rose 3.52% and the Nasdaq surged 5.31%.

Some investors were disappointed at the market’s sluggish performance so far this week, however, but held out hope that Thursday’s industrial index from the Institute for Supply Management and Friday’s monthly job creation report from the Labor Department would further energise stocks.

“What you’ve had all year long is support for the market: share buybacks, merger and acquisition activity, better-than-expected earnings,” said Brian Gendreau, investment strategist for ING Investment Management. “All of that should have propelled the market, but it didn’t until (recently) and it’s all still there.”

With a month to go, the market is still well positioned to end the year in positive territory. For the year to date, the Dow is up 0.21%, the S&P has gained 3.1% and the Nasdaq has risen 2.64%.

Despite a general lift in technology stocks, which propped up the Nasdaq, Blackberry pager maker Research in Motion Ltd. tumbled 3.79, or 5.8%, to 61.13 after a Virginia judge threw out the company’s proposed patent settlement with NTP Inc.

Yahoo added 4 cents to 40.23 even after UBS Investment Bank lowered the Internet firm one notch to ”neutral,” saying it needs to execute on several key initiatives before earnings estimates can be raised.

Smithfield Foods, the world’s largest pork processor, said its second-quarter profit fell 12%, but matched analysts’ target before restructuring charges. A sharp rise in beef sales helped revenue grow 7%. Smithfield fell 76 cents to 29.23.

Genworth Financial gained 45 cents to 34.45 on news that its stock will be added to the S&P 500 Thursday, replacing troubled energy merchant Calpine, whose stock lost 57% on Tuesday after saying its chief executive and finance chief were leaving the company. Calpine fell 3 cents to 51 cents per share.

Declining issues outnumbered advancers by about 7 to 6 on the New York Stock Exchange, where volume came to 1.2bn shares, compared to the 1.24bn shares changing hands on Tuesday.

The Russell 2000 index of smaller companies rose 3.60, or 0.53%, to 677.29.