The dollar slumped to the lowest level of the year, U.S stocks climbed to a nine-month high and gold, oil and copper rallied after a smaller-than-forecast contraction in the economy sent investors to higher-yielding assets. Treasuries increased as inflation concern eased.
The Dow Jones Industrial Average added 0.3 percent as of 2:38 p.m. in New York, extending its best monthly gain since 2002, after the Commerce Department said gross domestic product contracted a better-than-forecast 1 percent annual pace. The dollar fell 1.3 percent to 1.4258 per euro, from $1.4075 yesterday, while gold, copper and crude futures increased by at least 2 percent. The yield on the 10-year note slipped 10 basis points, or 0.1 percentage point, to 3.51 percent.
Investors bought commodities and securities that benefit most in an expanding economy on speculation the worst recession in half a century is ending. Government bonds rose after a gauge of consumer spending in the GDP report retreated more than projected, suggesting prices remain in check.
“People are looking for more risk,” said Philip Orlando, who helps oversee $400 billion as chief equity market strategist at Federated Investors Inc. in New York. “Investors are coming to the realization that the recession probably ended last quarter and we’re on the path to recovery. At this rate we’re looking at positive GDP in the third and fourth quarters.”
The dollar dropped as an improving economy reduced demand for the currency as a haven, pushing up oil and other commodities. Gold advanced by the most in two weeks, with futures for December delivery adding 2.4 percent to $957.10 an ounce on the Comex division of the New York Mercantile Exchange.
“The market is getting some support from stocks, but the more salient feature is the weakness of the dollar against the euro,” said Jim Ritterbusch, president of Ritterbusch & Associates, a Galena, Illinois, energy consultant.
Equities extended gains after the International Monetary Fund predicted a “gradual” recovery in the U.S. economy. General Electric Co., Bank of America Corp. and Alcoa Inc. led the Dow higher after the report, each adding at least 2.4 percent. The Standard & Poor’s 500 Index, up 7.9 percent in July, is headed for a fifth straight monthly advance, the longest streak since 2007.
Second-quarter profits at companies from Caterpillar Inc. to Dow Chemical Co. reinforced signs a nine-quarter slump in earnings is ending. Today’s Commerce Department report, which included benchmark revisions to past years, showed that GDP has tumbled 3.9 percent since the second quarter of last year -- the biggest drop since quarterly records began in 1947. GDP has fallen four straight quarters, the longest ever.
