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Wall Street advanced as investors opted to focus on signs that the US economy has picked up, increasing their bets on the outlook, even as the final reading on first-quarter GDP showed a worse-than-expected contraction.
US gross domestic product shrank at a 2.9 percent annual rate, the biggest drop in five years, following a previously reported 1.0 percent decline, in the first three months of the year, according to Commerce Department data. Analysts pointed to recent data that underpin the view of an accelerating recovery in the world's biggest economy.
"It sounds worrisome, but keep in mind job growth is running 200,000 each of the last four months, so we aren't just whistling in the dark in our optimism over the outlook," Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ in New York, told Reuters.
Indeed, equities moved higher. In the final hour of trading in New York, the Dow Jones Industrial Average gained 0.26 percent, the Standard & Poor's 500 Index added 0.40 percent, while the Nasdaq Composite Index rose 0.54 percent.
"As long as investors believe the economy will keep growing, and everyone expects growth in the second quarter, the lesser evil will be to buy equities at a modestly higher valuation, since bonds and cash don't represent better values," Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, told Reuters.
Gains in shares of Merck, Walt Disney, and Pfizer-up 1.8 percent, 1.8 percent, and 1.7 percent respectively-propelled the increase in the Dow.
US Treasuries advanced in the wake of the latest GDP numbers, which also whetted the appetite for an auction of US$35 billion of five-year bonds.
"It was a fair auction, decent demand-global fixed-income continues to trade very, very well despite the fact most market pundits were calling for higher rates this year in an improving economy," Guy Haselmann, an interest-rate strategist in New York at Bank of Nova Scotia, which as a primary dealer must bid at US debt auctions, told Bloomberg News. "Growth and inflation expectations have been overly rosy for four years in a row, and the risks are they will continue to be overly rosy."
Shares of Monsanto climbed, last up 5 percent, after the company upgraded its full-year outlook and announced a US$10 billion share buyback.
"Through the third quarter, we're on track for seeds and traits to drive a majority of our full year growth," Hugh Grant, Monsanto's chief executive officer, said in a statement. "That performance in a more challenging agricultural environment speaks to the breadth and customer value of our product portfolio."
Shares and Barnes & Noble rose, last up 4.9 percent, after the book retailer said it would spin off its Nook business. It also posted a quarterly loss that shrank from the previous year.
"We believe we are now in a better position to begin in earnest those steps necessary to accomplish a separation of NOOK Media and Barnes & Noble Retail," Michael Huseby, Barnes & Noble's CEO, said in a statement.
"We have determined that these businesses will have the best chance of optimising shareholder value if they are capitalised and operated separately," Huseby said. "We fully expect that our Retail and NOOK Media businesses will continue to have long-term, successful business relationships with each other after separation."
In Europe, the Stoxx 600 Index ended the session with a 1.1 percent slide from the previous close. Germany's DAX gave up 0.7 percent, the UK's FTSE 100 fell 0.8 percent, while France's CAC 40 slumped 1.3 percent.
The United Nations passed a resolution that encouraged Iraq's military to start fighting. US military personnel are arriving in Iraq and setting up a command centre to help the government's forces push back against the Islamist militants who've surged into the country in recent weeks.