Disappointing GDP growth in the US pushed stocks lower on Friday even as investors welcomed a US$57 billion merger between Procter and Gamble Co and Gillette Co. Despite the losses, the major indexes eked out the first winning week of the year.
While investors were cheered by P&G's bid for Gillette and strong profits from Microsoft Corp, surprisingly weak economic data robbed the markets of any buying momentum. The Commerce Department reported that the GDP -- the value of all goods and services produced in the US -- rose at an annual rate of just 3.1 percent in the fourth quarter, the lowest gain in seven quarters. Economists had expected a 3.5 percent rise.
With elections in Iraq today, a Federal Reserve meeting beginning on Tuesday and the Labor Department's monthly job creation report due next Friday, investors used the GDP figure as another reason to sell stocks ahead of these uncertainties.
The Dow Jones industrial average fell 40.20, or 0.38 percent, to 10,427.20.
Broader stock indicators also gave ground. The Standard & Poor's 500 index was down 3.19, or 0.27 percent, at 1,171.36, and the NASDAQ composite index lost 11.32, or 0.55 percent, to 2,035.83.
The market finally paid attention to strong earnings and generally positive economic data over the past week, resulting in a strong two-day rally. However, anxiety over the Iraqi elections and Friday's GDP number erased much of those gains.
Nonetheless, the major indexed were positive for the week -- barely. The Dow rose 0.33 percent, the S&P 500 was up 0.3 percent and the NASDAQ climbed a meager 0.08 percent. That reversed a three-week slide for all three indexes.
Wall Street had expected the economy to slow somewhat from the 4 percent annual pace posted in the third quarter of last year, but Friday's GDP reading showed far more of a slowdown than analysts had believed. That raises concerns about profit growth for future quarters as well as the health of the labor market.
The Federal Reserve is scheduled to meet next Tuesday and Wednesday, and is widely expected to raise the US' benchmark interest rate to 2.5 percent from the current 2.25 percent. While there have been concerns about rising prices and inflation, slower economic growth could keep the Fed from a more aggressive rate policy.
With economic uncertainty continuing, US corporations are holding fast to large reserves of cash, hoping for a better economic environment in which to expand. And as the recent merger activity has shown, many companies are opting to use that cash to buy other companies.
Procter and Gamble's bid for Gillette would create a consumer products maker with a wide swath of brand names in healthcare products, food and other consumer staples.
Berkshire Hathaway founder Warren Buffett, the single largest Gillette shareholder, called the merger "a dream deal," and said he would buy up P&G shares as well. P&G dropped US$1.17 to US$54.15 on the news, while Gillette surged US$5.92, or 12.96 percent, to US$51.60.
The Russell 2000 index of smaller companies was down 3.90, or 0.63 percent, at 613.00.
The Dow Jones Wilshire 5000 Composite Index -- a free-float weighted index that measures 5,000 US based companies -- ended the week at 11,531.25, up 23.96 points from last week. A year ago the index was 11,016.96.
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