Dow climbs 11% as weak GDP keeps door open for rate cut

Wall Street was last night heading for its biggest one-month gain in almost 16 years as a clutch of poor economic data kept the prospect of further interest rate cuts alive.

The Dow Industrial Average has climbed 11% during October - a month more commonly associated with stock market crashes - representing the largest one month percentage increase since January 1987.

The US experienced economic growth of 3.1% during the third quarter, twice the sluggish rate of the previous three months. Consumer spending, particularly for new cars, drove the growth. But the figure, for gross domestic product between July and September, fell short of the 3.6% expected by economists.

Recent reports have pointed to waning confidence among the US public and auto sales, buoyed by incentive deals, have begun to show signs of softening.

Jobs data, due today, is likely to dent confidence further, with analysts expecting the unemployment rate to have climbed from 5.6% to 5.8%.

There has been speculation that the federal reserve will cut rates again by year end to keep Americans spending into the Christmas season. The committee meets next Wednesday.

"The GDP data keeps the door open to the rate cut," said economist Mark Chandler of Scotia Capital Markets. "They suggest we are heading into a weak fourth quarter."

The rebound on Wall Street of recent weeks has not been enough to reverse the falls of the year and share indices are still heading for their third straight year of decline. The Dow is 15.9% down on the start of 2002 and the technology-laden Nasdaq is 32% lower.

Analysts were sceptical that the rally could be sustained in the face of weakening consumer confidence and, in mid-afternoon trade yesterday, the Dow was marginally lower, falling 26 points to 8401.

The telecoms and technology sector experienced the biggest gains during October. Hewlett Packard recorded a 36% gain during the month, IBM was 35% better and SBC Communications was 30% higher. Citigroup, the beleaguered financial services group also performed surpris ingly well, its shares notching up a 23% increase.

Among other economic data, manufacturing in the Midwest, a barometer for the rest of the US, contracted for the second consecutive month, according to figures from the national association of purchasing management. The figure of 45.9 was worse than expected and the lowest since January. A figure above 50 represents expansion and below equals contraction.