gdp report

NEW YORK (Dow Jones)--Prices of U.S. Treasurys rose across the board Friday morning after a report that painted a picture of a still weak U.S. economy, with consumers and businesses both continuing to struggle.

The Commerce Department, in its advance report on second quarter gross domestic product said that consumer spending slid by 1.2% during the April through June period after increasing 0.6% in the first quarter and dropping 3.1% in the fourth quarter. Meantime, business spending dropped 8.9% after decreasing 39.2% in the first quarter.

What's more, while GDP fell at a seasonally adjusted 1.0% annual rate in the second quarter versus the 1.5% drop expected in a Dow Jones survey, some market participants had expected an even stronger headline number, said Carl Lantz, a fixed income strategist at Credit Suisse, and when that didn't materialize, they jumped into the bond market.

"Even though the headline was better than consensus, the whisper number was for a bit stronger and some of the details were worrisome," he said. "The story is still that the consumer is pretty weak and until the employment picture improves, it's hard to see that changing much."

GDP acts as a scoreboard for the economy by measuring all goods and services produced. It fell by 6.4% in the first quarter and by 5.4% in the fourth quarter, at the pit of the recession.

In recent trade, the two-year note was up 2/32 to yield 1.17%, the 10-year was 19/32 higher to yield 3.57% and the 30-year was up 1 7/32 to yield 4.37%. Bond prices move inversely to yields. Treasurys benchmark yield curve, the gap between the two and 10-year yields flattened even more, with the curve moving to plus 240 basis points from plus 245 Thursday. At the start of the week it was at plus 271 basis points.

U.S. stocks climbed on Friday after a report showed a smaller-than-expected contraction in the economy this spring, keeping blue chips on track for their strongest monthly gain in nearly seven years.

Shortly after the opening bell, the Dow Jones Industrial Average was higher by about 47 points. The S&P 500 and the Nasdaq Composite Index were higher by a handful of points each.

Going into the last day of July, the Dow industrials are up 8.4% for the month, the best monthly performance since October 2002. The Dow is also on track for its best July since 1989, when it rose 9.04%. Stocks have rallied by around 40% since hitting lows in March, fueled by hope that the recession has bottomed.

The Commerce Department said on Friday that GDP contracted at a seasonally adjusted 1% annual rate, better than the 1.5% rate of decline that was expected by Wall Street economists, as businesses were less aggressive than expected in liquidating inventories. Consumer spending, which accounts for the bulk of U.S. economic activity, slid 1.2% in the second quarter after rising 0.6% in the first quarter.

Earnings, also a key driver of the market's July rally, were lackluster on Friday. Chevron shares were flat after the oil giant said that its second-quarter earnings dropped 71% amid lower oil and gas prices.

Overseas, Asian markets pushed higher on the strength of the U.S. market overnight, while European markets were mostly lower.