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Stocks Holding to Positive Route

U.S. stocks continue to trade with solid gains as traders weigh a new round of earnings reports and even as a decline in third-quarter GDP points to recessionary realities.
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Updated from 11:38 a.m. EDT

Stocks in the U.S. edged off their opening highs but were staying positive Thursday, as a decline in third-quarter GDP was narrower than expected and companies issued a heap of

quarterly earnings



Dow Jones Industrial Average

was up 52 points to 9043, and the

S&P 500

added 8.5 points to 939. The


jumped 14 points to 1672.

Ahead of Thursday's session, the Department of Commerce reported that

GDP contracted 0.3%

in the third quarter, providing a strong indication that the U.S. has entered a recession. The decline was narrower than expected by economists but down from growth of 2.8% in the second quarter.

Separately, the Department of Labor's initial jobless claims for the week ended Oct. 25 registered at 479,000, above analyst estimates and level with the previous week.

"If you'd been wondering if there was recession, this kind of brings it home," said Phil Dow, director of equity strategy at RBC Dain Rauscher. He said that a recession normally has been ongoing by the time the government says there is one, and that he thinks going forward the U.S. will see a two-quarter recession followed by modest growth.

"We shouldn't look for perfection in these estimates," said Dow. "It's pretty easy to get in a black mood and think that this is going to extend forever."

As for the GDP number's impact on stocks, "Normally you have the stock market recover even when it's cloudy," said Dow, and he said the market feels like it's close to an interesting bottom in pricing.

Steven Wieting, economist at Citigroup, wrote in an email that consumer spending for the third quarter dropped 3.1%, the biggest drop since 1980. Declines in production and employment, coupled with tight credit markets and wealth destruction indicate that GDP may decline more than 3% for the fourth quarter, he wrote.

However, "Assuming some easing in extraordinarily tight credit markets, we may currently be experiencing the worst pace of contraction in domestic economic activity overall," he wrote.

On the other hand, Bill Fleckenstein, hedge fund manager for Fleckenstein Capital, said he expects to see a sustained contraction, because many companies have said that business has dropped off significantly. "The psychological sea change that's taking place isn't being captured by these numbers. ... We are going to have a brutal recession. That cannot be changed."

In terms of government intervention, "From a balance-sheet standpoint, the country's kind of broke, said Fleckenstein. He said that continued efforts to prop up housing prices is a failing undertaking, and that, given a limited set of options, the government would be better served funding infrastructure and energy projects to alleviate unemployment and reinvigorate the economy.

Additional government efforts to bolster the economy looked to be in the works, as


reported that the Treasury Department and the Federal Deposit Insurance Corp. may devote $500 billion to help avert home foreclosures.

Meanwhile, in the wake of the

Federal Reserve's

50-basis-point rate cut that brought its target interest rate to 1% Wednesday, debt markets were relaxing. Three-month dollar Libor was down 23 basis points to 3.19%, and overnight Libor declined 41 basis points to 0.73%.

American Express

(AXP) - Get Free Report

signaled it was preparing for a tough year ahead, as the company announced it would cut jobs and reduce compensation in an effort to save $1.8 billion in costs for 2009.

Analyst actions

further illustrated uncertainty about the future of the banking sector. Merrill Lynch reduced 2009 earnings estimates for

Goldman Sachs

(GS) - Get Free Report


Morgan Stanley

(MS) - Get Free Report

further below consensus, while raising estimates for


(C) - Get Free Report


JPMorgan Chase

(JPM) - Get Free Report

further above consensus.

A smattering of corporate earnings were once again occupying traders' attention. Following Wednesday's close, insurance company


(MET) - Get Free Report

announced a decline in quarterly profit. Fellow insurer


(PRU) - Get Free Report

swung to a loss.

Exchange operator

CME Group

(CME) - Get Free Report

said profit declined year over year.

Investors heard from a variety of energy companies. Integrated oil firm and Dow component

Exxon Mobil

(XOM) - Get Free Report

posted earnings of $14.8 billion, the largest quarterly profit ever reported by a U.S. company.

Royal Dutch Shell


reported income that rose 71% year over year on higher oil prices.

Murphy Oil

(MUR) - Get Free Report

, on the other hand, reported a substantial increase in third-quarter earnings but lowered guidance for the fourth quarter. Oil and natural gas firm


(APA) - Get Free Report

reported a profit for the third quarter that increased 94% from the year-ago period.

Ahead of Thursday's trading, telecommunications equipment maker



reported a loss on falling revenue and charges stemming from the merger between Alcatel and Lucent.

Cell-phone manufacturer



swung to a loss and lowered guidance for the full year.

Pharmaceutical company


(AZN) - Get Free Report

reported net income that rose year over year. Consumer products maker


(CL) - Get Free Report

also announced an increase in profit on rising sales.

On the merger front,

Delta Air Lines

(DAL) - Get Free Report

completed its acquisition of

Northwest Airlines



Crude oil was losing $2.58 to $64.92 a barrel. Gold was shedding $14.10 to $739.90 an ounce.

Longer-dated U.S. Treasury securities were falling in price. The 10-year note was down 20/32 to yield 3.93%, and the 30-year was declining 20/32, yielding 4.27%. The dollar was rising vs. the yen, but falling against the euro and pound.

Overseas, European exchanges including the FTSE in London and the Dax in Frankfurt were trading higher. In


, Japan's Nikkei and Hong Kong's Hang Seng closed with substantial gains.


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