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Market rises on rosy reports

The American economy delighted Wall Street on Thursday with a combination of faster growth and slower inflation for the first three months of the year.

The stock market shot higher, recovering from its interest-rate jitters of just days ago, but it drew a mild caution from President Clinton.

"Markets will go up and down. They will change," he said at a news conference.

He attributed gains mostly to the productivity of American workers and businesses and to an interest-rate drop caused by Asian financial turmoil.

Still, he added, "I hope . . . we could avoid any kind of big swings in the market one way or the other."

Growth in the nation's gross domestic product _ the sum of all goods and services produced within U.S. borders _ rose to a rapid seasonally adjusted annual rate of 4.2 percent in the January-March period, the Commerce Department said.

That exceeded the robust 3.7 percent rate in the final three months of 1997 and all but a few economists' expectations.

In another sign of strength, the Treasury Department said the government ended Wednesday with $100-billion in its coffers _ the largest daily cash balance ever. That indicated tax revenue is streaming into the government, and it increased the likelihood of a surplus in fiscal 1998, the first in 29 years.

But even with the extraordinary economic growth, inflation pressures appeared to be diminishing, according to both a price measure linked to the GDP and a separate Labor Department report measuring Americans' wages.

"The dream economy lived on for another quarter," said economist Robert Dederick of Northern Trust Co. in Chicago.

The Employment Cost Index rose only a moderate 0.7 percent from January to March despite unemployment at a 24-year low. It was the smallest rise in a year and down from 1 percent in the fourth quarter.

Prices as measured in the GDP report inched up at a scant 0.9 percent annual rate, down from 1.4 percent during the October-December period and the smallest since 1963.

Analysts said employers apparently are finding ways other than wage and salary increases to attract and keep workers with needed skills.

Whatever the reason, the figures cheered financial markets because they indicated the Federal Reserve can avoid raising short-term interest rates for a while longer.

The Dow Jones Industrial Average jumped 112 points to close at 9,063. With Wednesday's increase, the gain wiped out all but a point of a 166-point slide over Monday and Tuesday. A bond rally lowered the yield on the 30-year Treasury bond to 5.95 percent late Thursday, down from 6.07 percent a day earlier.

Though first-quarter GDP growth was the best in a year, elements of the report hinted at weakness to come. Without a boom in computer purchases by both individuals and businesses, growth would have slowed slightly to a 3.5 percent pace, the Commerce Department said.

Economists have been expecting Asia's financial problems to crimp the U.S. economy by slashing export sales to the region and by encouraging Americans to buy goods cheaply from countries with devalued currencies.

Indeed, exports fell at a 3.4 percent rate, the sharpest drop in 4{ years. At the same time, imports shot up at an 11.6 percent pace. The combination produced the worst quarterly deterioration in the U.S. trade deficit on record for the past half century.

However, interest-sensitive sectors of the economy took off in the first quarter. Business investment in new equipment soared at a 28.8 percent rate, the fastest since late 1983. Investment in computers alone soared at an 89 percent rate. Spending on housing jumped at a 17.6 percent rate, the most rapid in nearly two years.

Growth in consumer spending more than doubled to a 5.7 percent rate, the speediest pace in six years.

Meanwhile, the Labor Department said new claims for unemployment benefits edged up 1,000 last week to 319,000, the highest level since late February, hinting of slowing in the second quarter.

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