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U.S. growth upgrade gives stocks another lift

Updated at 10:59 a.m. ET

PARIS - News that the U.S. economy grew by more than previously thought in the third quarter shored up global markets Friday and sent the main U.S. indexes up to record highs.

Government figures showed that the world's largest economy grew by an annualized rate of 4.1 percent in the third quarter, up from the previous estimate of 3.6 percent. The pace of growth is further evidence that the U.S. economy is gaining traction and helps explain why the U.S. Federal Reserve decided to reduce its stimulus by $10 billion a month starting from January.

Mindful of the impact on markets, the Fed also emphasized Wednesday that its main interest rate would remain low until U.S. unemployment falls below 6.5 percent. It's now 7 percent. That commitment has helped support stock markets since despite concerns among investors about the potential impact of the stimulus reduction -- over the past few years, the stimulus has been a key reason behind the bounce back in stocks.

"These gains may continue in the coming weeks, although with the holiday season now upon us, trading volumes will be significantly reduced," said Craig Erlam, market analyst at Alpari. "The economic calendar will also provide less direction for the markets, making any significant moves unlikely."

In Europe, the FTSE 100 index of leading British shares was up 0.5 percent at 6,615 while Germany's DAX rose 0.7 percent to 9,396. The CAC-40 in France was 0.3 percent higher at 4,190.

In the U.S., the Dow Jones industrial average was up 0.4 percent at 16,243, while the broader S&P 500 index rose 0.5 percent to 1,818.

In Asia, in particular, investors are also monitoring developments in China, and specifically whether the country's monetary authorities will be able to prevent a new cash crunch at its banks. The People's Bank of China moved late Thursday to inject liquidity after the interbank market showed stress, but concerns over a repeat of the summer's credit crunch weighed on the market.

That weighed on the performance of a number of markets in Asia. China's Shanghai composite dropped 2.0 percent to 2,181.94 on fresh concerns of a shortage of credit. Hong Kong's Hang Seng index also fell 0.3 percent to 22,812.18.

Elsewhere in Asia, Japan's Nikkei index recovered some early losses near a six-year peak at 15,837.31 as investors welcomed the continued weak yen, which is expected to boost exports.

The dollar has largely been ascendant since the Fed's decision as traders price in the prospect of less new money being created. The dollar is trading 0.2 percent lower at 104.13 yen, just shy of its earlier five-year high of 104.64 yen.

The euro recouped some ground, trading 0.4 percent higher at $1.3694 even though Standard & Poor's downgraded the European Union's credit rating.

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