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Stocks gain as Bernanke, GDP reassure investors

NEW YORK CITY — The news on the economy wasn’t great Friday, but it could have been worse. That was enough to send investors charging out of Treasurys and back into stocks.

The Dow Jones industrial average and other market barometers all gained more than 1 percent after the government slashed its estimate for second-quarter economic growth, but not by quite as much as economists had expected.

Likewise, Federal Reserve Chairman Ben Bernanke said in a speech that while the economic recovery remains tentative, the central bank remains ready to take extra steps to stimulate the economy if needed. He also reaffirmed his view that the economy would grow next year.

“It could have been worse, and because it wasn’t, that was good news,” said Alan Gayle, senior investment strategist for RidgeWorth Investments, based in Richmond, Va. “Clearly the bar is being lowered for what constitutes good news these days.”

The market had a brief scare in midmorning after Intel Corp. lowered its revenue estimate. There, too, the news wasn’t as bad as it could have been. Intel’s shares edged higher after resuming trading since the company’s new forecast wasn’t as bad as the worst estimates circulating among analysts.

On the economic front, the Commerce Department reported that gross domestic product grew at a 1.6 percent rate in the April-to-June period. That’s still way down from its earlier estimate of 2.4 percent but not as bad as the 1.4 percent expected by economists.

“These are terrible numbers,” Kim Caughey, equity research analyst at Fort Pitt Capital Group in Pittsburgh, said. “But they weren’t frighteningly horrible.”

Yields on Treasurys, which help set interest rates on loans like mortgages, rose sharply as their prices fell. That could put upward pressure on mortgage rates, which are still at historic lows.

The Dow Jones industrial average rose 152.65, or 1.5 percent, to 10,138.65 in afternoon trading. The Standard & Poor’s 500 Index rose 15.82, or 1.5 percent, to 1,063.04 and the Nasdaq composite index rose 33.09, or 1.6 percent, to 2,151.78.

Rising stocks outnumbered falling ones five to one on the New York Stock Exchange, where volume came to 760 million shares.

The yield on the 10-year Treasury note rose to 2.64 percent, well above the 2.50 percent it was trading at before the GDP numbers came out. Its price fell $1.375 to $99.844.

The Dow closed below 10,000 Thursday, the first time since early July that it finished under that milestone. Investors have been generally pessimistic about the economy in the past few weeks, but stock moves have also been skewed because many traders are on vacation.

The upturn in stocks on Friday marked an improvement in sentiment from much of August. Stocks have been mainly falling since Aug. 9 on a series of weak indicators on the economy, including weak home sales figures.

Bernanke, who was giving a speech at the central bank’s annual conference, repeated his assessment that the U.S. economic recovery remains fragile, but he didn’t downgrade his already cautious view. Investors have been on edge about the economy in recent weeks, and some fear that in the worst case, the U.S. economy could slip back into recession, something economists call a “double-dip.”

“The market had been bracing for Bernanke to say that a double-dip is imminent or at least he would downgrade the economy,” said Quincy Krosby, market strategist for Prudential Financial.