Weaker-than-expected U.S. economic news provided a initial boost to markets Friday morning, but Wall Street and Bay Street both struggled to hold on to early gains.

As of midday, Toronto’s S&P/TSX was up by just 3.4 points or 0.04% to 8534.18, but falling, while the TSX venture exchange was also ahead, by 7.73 or 0.49% to 1588.05.

In New York, the Dow Jones industrial average backed off early gains, finishing the morning ahead by 9.29 or 0.09% to 10453.1. The Dow was up by more than 20 points early in the day. Broader stock indicators were moderately higher. The Standard & Poor’s 500 index was up 1.86 or 0.16% at 1142.51, and the Nasdaq composite index gained 12. 72, or 0.6% to 2027.84.

According to the U.S. Commerce Department, the GDP grew at a 3.9% annual rate in the first quarter of 2004. That’s a strong pace, but less than expected, causing some to worry about the strength of the economic recovery.

Investors concerned about interest rates, however, were cheered by the report. Growth moderating from the 4.1% annual pace of the fourth quarter lessens the chance of inflation taking hold and could keep the Federal Reserve from aggressively raising interest rates beyond the 0.25% expected on Wall Street.

“I think at this point, a half-point raise is off the table,” said one U.S. trader. “And I think the market will be comfortable with a quarter-point rate hike, especially after seeing this number.”

The Fed meets next week to determine whether to raise its benchmark rate from its current 43-year low of 1%.

U.S. markets took some comfort from a rise in U.S. consumer sentiment in June. The University of Michigan’s final survey of consumer confidence for June showed its sentiment index rose to 95.6 from a reading of 90.2 in May, higher than the 95.0 reading that had been expected.

And existing U.S. home sales rose 2.6% to a record 6.8 million in May.

The Canadian dollar dropped 0.21¢ to US74.09¢ after Statistics Canada reported that retail sales took an unexpected drop in April, led by a decline in the auto sector. Consumer spending in retail stores fell 0.8% from March to $28.4 billion.

On the TSX, health care and real estate led the way up, while consumer stocks and gold shares were trading down. Financials were flat.


Overseas, Japan’s Nikkei stock average rose 0.3%. In afternoon trading, Britain’s FTSE 100 slipped 0.2%, Germany’s DAX index was flat and France’s CAC-40 fell 0.3%.