Traders Cheer Slow Growth

Traders cheered a government report that showed the U.S. economy slowed in the second quarter, sending stocks higher to cap their best week since November 2004.

The economy grew at a 2.5% rate in the second quarter, according to the Commerce Department. That was less than economists were expecting and half the first quarter’s growth rate, and inflation was also within expectations.

Investment in equipment and software fell 1% in the quarter, the first decline in three years. Final sales of computers subtracted 0.03 percentage points from second-quarter growth.

The report raised hopes that the Federal Reserve will finally abandon its two-year rate-hike campaign when it meets in August.

Solid results from KLA-Tencor sent chip stocks to a 3% gain and overcame disappointing reports from McAfee , Rackable Systems and Sierra Wireless . McAfee said it may need to restate past results because of a stock option review.

Genesis Micro and FormFactor also gained on their results.

The Nasdaq surged 39 to 2094, the S&P 500 rose 15 to 1278, and the Dow gained 119 to 11,219. Volume declined to 2.53 billion shares on the NYSE, and 1.88 billion on the Nasdaq. Advancers led 26-6 on the NYSE, and 21-9 on the Nasdaq. Upside volume was 81% on the NYSE, and 82% on the Nasdaq. New highs-new lows were 120-66 on the NYSE, and 83-101 on the Nasdaq.