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. Last Updated: 07/27/2016

U.S. Economy Shows Sharp Drop in GDP

NEW YORK -- Stocks rallied in early morning trading Wednesday after the U.S. economy shrank less than Wall Street feared in the third quarter although it suffered its worst contraction in more than 10 years.

"This is a good sign," said George Rodriguez, senior vice president of equities at Guzman & Co. "It reinforces the belief that there are buyers out there who are just waiting for some positive signs. Whether it's enough to sustain the market through the end of the year, I don't think so."

The economy recorded its sharpest fall since the first quarter of 1991, the government said in its "advance" or early estimate of gross domestic product. GDP, the broadest measure of U.S. economic health, shrank 0.4 percent in the third quarter but still beat economists' projected 1 percent drop.

Investors are hoping increased government spending and lower interest rates will spark an economic recovery by 2002. Sun Microsystems Inc. nursed those hopes early in the session. A sales executive said orders were tracking higher so far this quarter than they were at this time last quarter.

The technology-laced Nasdaq Composite Index jumped 47.32 points, or 2.84 percent, to 1,714.73, after snagging a more than 3 percent gain. Sun Microsystems jumped $1.19, or more than 12 percent, to $10.73 and ranked as the most active on Nasdaq.

The Dow Jones industrial average rose 74.38 points, or 0.82 percent, to 9,196.36, after climbing more than 1 percent. Computer and printer maker Hewlett-Packard Co. boosted the blue-chip gauge with a 60-cent rise to $17.57.

The broader Standard & Poor's 500 Index was up 5.54 points, or 0.52 percent, at 1,065.33. The stock market had sold off in the last two days after rallying last week.

Most economists expect the economic contraction to last at least to the end of the year and if it does, the third quarter would mark the start of the first U.S. recession in 10 years. A recession is loosely defined as at least two straight quarters of falling GDP.

U.S. President George W. Bush was set to make remarks on the U.S. economy Wednesday before the National Association of Manufacturers' board of directors, the White House said. Bush was expected to appeal for quick action on a stimulus plan to boost the U.S. economy.

Online credit provider NextCard Inc. plunged a stunning 76 percent, or $4.09, to $1.26. NextCard said it was looking to sell the company as it reported that its quarterly losses widened.

Intel Corp., a Dow member and Nasdaq heavyweight, added 57 cents to $24.11. The world's largest chip maker sounded a bullish note for long-term growth, saying the billions it's spending this year will yield profits and market share gains once the high-tech recession abates and growth resumes.

Publishing software vendor Adobe Systems Inc. fell $2.68 to $26.07. The company said it would cut 150 jobs, or 5 percent of its work force, and lowered its revenue and earnings guidance, citing weakening business after Sept. 11.

Beleaguered energy trader Enron Corp. rose $1.47 to $12.63, bouncing back from 10 consecutive days of losses. Its shares on Tuesday dropped 19 percent to hit 1992 levels amid fears of credit crunch and concerns over management reluctance to discuss its finances.