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Dollar Drops; Stocks, Gold Gain as Economic Contraction Slows

Jeff Kearns
Bloomberg [1]
Saturday, August 1, 2009

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.”

Full article here [2]