Wall Street rises despite GDP shocker

M&A battle over Hillshire Brands pushes S&P 500 to new closing record.

US stocks shrugged off a greater-than-expected fall in GDP to close higher as a battle between two giant meat processors over hot dog maker Hillshire Brands pushed the S&P 500 to a new record.

The US economy contracted a surprising 1% in the first quarter as economists said a rebound was already firmly under way.

The Dow Jones Industrial Average climbed 65.6 points, or 0.4%, to close at 16,698.7. The S&P 500 advanced 10.3 points, or 0.5%, to 1,920.3, a new closing high for the index. Meanwhile, the Nasdaq Composite Index added 22.9 points, or 0.5%, to 4,247.95.

Major indexes traded in a narrow band in below-average volume after the second estimate of first-quarter US gross domestic product showed the economy contracted at a seasonally adjusted 1 per cent, more than expected. Investors largely brushed off the weak report, saying that it essentially told the market what is already known: the economy was sluggish in the first three months of 2014, in large part because of harsh winter weather.

Government economists had previously estimated that GDP, the broadest measure of goods and services produced across the US, slowed to a 0.1% growth rate in the first quarter.

The latest GDP report does little to change the monetary-policy trajectory of the Federal Reserve, which is reducing its bond purchases but remains committed to keeping interest rates low for an extended period, according to Brian Jacobsen, chief portfolio strategist at Wells Fargo Funds Management.

"People are dismissing some of the weakness and expecting that there is going to be strength in the future," Mr Jacobsen said. "It's not about what was; it's about what will happen. A lot of what will happen will be driven by central bank policies."

Anastasia Amoroso, global market strategist at JP Morgan Funds, was similarly unmoved by the weak economic reading, which she likened to "looking in the rearview mirror."

Rather, she is focused on more recent economic data that has shown signs of improvement as stocks grind higher.

Jobless claims in the week ended May 24 fell more than expected and remained near prerecession levels, according to the Labor Department. The number of Americans filing claims for new jobless benefits fell by 27,000 to a seasonally adjusted 300,000, versus an expected to decline to 319,000.

"The trend is starting to reverse and, all in all, the data is adding up to a stronger second quarter," Ms Amoroso said.

A separate report on pending home sales for April rose 0.4%, below expectations for a gain of 2%.

Meanwhile, Hillshire Brands jumped 17.7 per cent to $52.76 as Tyson Foods made an offer valued at $US6.8 billion ($A7.36 billion) for the company, topping the $US6.4 billion bid made on Tuesday by Pilgrim's Pride, a subsidiary of Brazilian meat titan JBS.

Hillshire's closing price was well above Tyson's $US50 a share offer, suggesting investors were anticipating a bidding war between the two suitors.