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Stocks gain after better-than-estimated growth in GDP; optimism fuels speculation about Fed

U.S. stocks rallied Thursday as a report showed faster-than-estimated growth in gross domestic product, fueling speculation the economy is strong enough to withstand higher interest rates.

Visa Inc. and MasterCard Inc. added more than 9 percent each as the two largest U.S. payment networks reported results that topped estimates. Bristol-Myers Squibb Co. jumped 8.9 percent after a drug improved survival rates for cancer patients. Energy shares retreated as oil resumed a selloff after U.S. production rose to the highest level since the 1980s.

The Standard & Poor’s 500 Index rose 0.6 percent to a one-month high of 1,994.65, closing within 1 percent of its last record on Sept. 18. The Dow Jones industrial average rallied 221.11 points, or 1.3 percent, to 17,195.42. Visa is the Dow’s largest member by weighting. The Russell 2000 Index increased 0.8 percent and the Nasdaq Composite Index climbed 0.4 percent

“It’s now about the economy and earnings, we’ve all over-analyzed the Fed,” said Bob Doll, chief equity strategist at Nuveen Asset Management. “Job growth has picked up and the GDP report was a little stronger than consensus and that buttresses the view that the economy’s getting a little better. Stocks will continue to grind their way higher.”

The computer system that carries prices for thousands of equities listed by the New York Stock Exchange malfunctioned Thursday, sowing confusion among traders. The market operator later said the issue had been resolved.

The oldest American exchange reported an “ongoing issue with the NMS SIP,” or the securities information processor for NYSE stocks, about 1:40 p.m. in New York. Two NYSE venues were “experiencing issues publishing and receiving trades and quotes,” the alert said. A notice 10 minutes later said the markets were processing trades and quotes normally.

The S&P 500 lost 0.1 percent Wednesday after the Fed ended its quantitative easing program, indicating the U.S. economy is on a stable growth path. Officials said labor market conditions “improved somewhat further,” and that a range of indicators suggests that “underutilization of labor resources is gradually diminishing,” modifying earlier language that referred to “significant underutilization.”

The central bank reiterated its commitment to keep interest rates low for a considerable time until inflation increases toward its goal.

Data showed fewer Americans filed applications for unemployment benefits over the past month than at any time in more than 14 years, a sign the strengthening U.S. economy is buoying the labor market.

A separate report said the economy in the U.S. expanded 3.5 percent in the third quarter, capping its strongest six months in more than a decade, as gains in government spending and a shrinking trade deficit made up for a slowdown in household purchases. Economists on average had forecast growth of 3 percent.

“The GDP number’s fine, not spectacular,” Michael Block, chief equity strategist at Rhino Trading Partners LLC in New York, said by phone. “The inflation data isn’t great and the quality of the GDP beat isn’t great as a lot of it is from government and defense spending. It adds to dovishness.”

Concerns that Europe will slip into a recession just as Fed bond buying ends sent the S&P 500 down 7.4 percent from an all- time high of 2,011.36 in mid-September through Oct. 15. The index has rebounded and is now about 0.8 percent below its record.

Visa jumped 10 percent, the most in three years, to a record $236.65. The world’s largest payments network reported fiscal fourth-quarter profit that beat analysts’ estimates as customer spending abroad improved.