While you were sleeping: US GDP shrinks 1%, list of

Friday 28th August 2009

The U.S. economy shrank at a smaller-than-expected 1% annual pace in the second quarter, a recovery from the 6.4% slump three months earlier, suggesting America is climbing out of recession.

Economists had expected a 1.5% contraction in the second quarter. Company profits rose 5.7%, the biggest increase since the first quarter of 2005, according to the Commerce Department. The GDP data is the second of three estimates the department releases.

Consumer spending, which makes up 70% of the U.S. economy, fell 1%, less than the 1.3% expected by economists.

Separate figures showed 570,000 Americans filed claims for unemployment benefits last week, down from 580,000 a week earlier, according to the Labor Department.

Helping stoke spending is the government’s `cash-for-clunkers’ program, which gives car buyers a discount of as much as US$4,500 to trade in older vehicles for more efficient models.

Stocks on Wall Street edged up after the data and on a late rebound in crude oil. U.S. Treasuries weakened and the greenback fell.

The Dow Jones Industrial Average climbed 0.4% to 9580.63 and the Standard & Poor’s 500 rose 0.3% to 1030.98. The Nasdaq Composite gained 0.2% to 2027.73.

Boeing Co. led gainers on the Dow, climbing 8.4% to 51.82 after saying its long-delayed 787 Dreamliner will make its first flight before the end of the year and deliveries would start in the fourth quarter of 2010.

Verizon Communications fell 1.4% to US$31.05 after regulators opened an inquiry into the U.S. wireless industry.

The U.S. dollar weakened against the euro as stocks and crude oil gained, reducing demand for the greenback as a haven.

The euro gained to $1.4356 from $1.4255. The regional currency extended its advance after breaking through a key level of $1.4280,

The European currency’s gains versus the dollar accelerated after breaking through a key level of $1.4280, according to BNP Paribas currency strategist Andrew Chaveriat, Bloomberg reported.

The euro was little changed at 134.24 yen. The dollar slipped 0.8% to 93.51 yen.

The yield on the benchmark 10-year Treasuries rose 3 basis points to 3.47% and the yield on 30-year Treasuries climbed 3 basis points to 4.23%. The Treasury sold US$28 billion of new seven-year bonds, the last of three sales this week that totaled US$109 billion. The bid-to-cover ratio was 2.74 times the amount on offer, higher than the average 2.44 times in sales of seven-year debt this year.

The Federal Deposit Insurance Corp. added 111 lenders to its list of ‘problem banks.’ A total of 416 banks with assets of about US$300 billion have failed the FDIC’s grading system. That’s the most since June 1994 and will add to pressure on the FDIC’s shrinking reserve fund after it increased loss provisions by US$11.6 billion. The U.S. has taken over 81 banks this year.

Shares weakened in Europe, where the Dow Jones Stoxx 600 fell 0.5% to 235.24. Among regional benchmarks, the U.K.’s FTSE 100 fell 0.4% to 4869.35, Germany’s DAX 30 declined 0.9% to 5470.33 and France’s CAC 40 dipped 0.5% to 3648.53.

Diageo Plc fell 4.1% after chief executive Paul Walsh said the liquor company faces a “challenging” year.

Copper prices fell as stockpiles monitored by the London Metal Exchange rose and amid speculation China, the biggest consumer of the metal, may use less after the State Council said it was looking at ways to curb overcapacity in some industries.

Copper futures for December delivery slipped 0.2% to US$2.872 a pound on the New York Mercantile Exchange.

Crude oil rose above US$72 as stocks advanced in the U.S. and the dollar weakened. U.S. crude for October delivery rose US$1.06 to US$72.49 a barrel.

U.S. December gold futures rose US$1.50 to US$947.30 an ounce in New York.

Businesswire.co.nz

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