Toronto's S&P/TSX composite index closed up 220 points to 13750, the Dow Jones industrial average closed up 213 points to 11715, the S&P 500 closed up 19 points to 1301 and the Nasdaq closed up 29 points to 2412.

Colin Cieszynski, market analyst at CMC Markets Canada, said Friday will be a key day for gauging equity market sentiment.

"Tomorrow's trading action may also be a significant barometer of investor confidence as it may show how willing investors are to hold equities through the long weekend," Cieszynski said.

Energy markets are focused on Tropical Storm Gustav and the newly-formed Tropical Storm Hanna. After crossing Jamaica, Gustav will grow into a major storm and head toward Louisiana, according to Jim Rouiller, senior meteorologist at Planalytics Inc.

"Gustav is going to explode into a major storm over the weekend," Rouiller said. "It will be a very large and dangerous hurricane."

Other analysts say Gustav will veer west and miss the bulk of offshore oil and natural gas production.

"Some models are showing that Gustav is shifting to the west, toward the Mexico-U.S. border," said Mike Fitzpatrick, vice-president of energy risk management at MF Global.

WTI crude rose to a four-day high of $120.48 early in the session, but later tumbled. Late in the day, crude oil was down $2.56 to $115.59.

Energy was also pressured following a U.S. report showing an unexpectedly large build in reserves of natural gas. The U.S. Energy Information Administration said underground storage increased 102 Bcf last week, higher than the 84 Bcf consensus estimate. Natural gas prices fell 6.5%.

U.S. stock futures were pointing to a negative day until an unexpectedly strong report on U.S. GDP was released. The U.S. Bureau of Economic Analysis revised GDP to 3.3% from the 1.9% preliminary estimate. Economists anticipated it would be revised higher because of trade figures, but the median estimate was for a rise to only 2.7%.

The report also sparked a selloff in U.S. fixed income. U.S. two-year yields were up 9.3 bps to 2.37%, with five-year yields up 3.4 bps to 3.05%, 10-year yields up 1.7 bps to 3.78% and 30-year yields down 0.7 bps to 4.37%. The Eurodollar March 09 contract was down 2.5 ticks to 97.07. The yield curve was flatter, with the 10/2-year spread down 2.2 bps to 145.87 bps.

Yields on two-year Canadian government bonds were down 1.4 bps to 2.74%, with five-year yields down 1.7 bps to 3.02%, 10-year yields down 1.9 bps to 3.51% and 30-year yields down 1.1 bps to 4.00%. The December 08 BAX contract was up 3.0 ticks to 97.12.

In Germany, returns on two-year German bonds were up 6.4 bps to 4.15%, with five-year yields up 5.3 bps to 4.10%, 10-year yields flat at 4.18% and 30-year yields down 3.8 bps to 4.57%.

Yields on UK two-year bonds were flat at 4.52%, with five-year yields down 0.5 bps to 4.45%, 10-year yields down 2.0 bps to 4.49% and 30-year yields flat at 4.40%.

The U.S. dollar was generally a strong performer.

The Canadian dollar was down 0.0056 to 0.9508 against the U.S. dollar (1.0518 USD/CAD) and down 0.56 to 104.11 against the yen.

The U.S. dollar was down 0.06 to 109.46 against the yen and the Dollar Index was up 0.111 to 77.162.

The euro was down 0.0015 to 1.4712 against the U.S. dollar, up 0.0066 to 1.5473 against the Canadian dollar, up 0.0014 to 0.8037 against the pound sterling and was lower by 0.16 to 161.09 against the yen.

The pound sterling was down 0.0053 to 1.8304 against the U.S. dollar and up 0.0047 to 1.9252 against the Canadian dollar.

The day ahead features the Canadian report on second quarter GDP. The consensus estimate of economists is for a 0.6% increase, but David Watt, senior currency strategist at RBC Capital Markets, said it could be weak.

"The BoC has already warned that growth was 'likely somewhat weaker' than their 0.8% q/q annualized expectation. This suggests that Q2 GDP growth was quite close to flat or possibly negative," Watt wrote in a client note.

All data taken at 4:46 p.m. EDT.

By Adam Button, This email address is being protected from spam bots, you need Javascript enabled to view it , edited by Sarah Sussman, This email address is being protected from spam bots, you need Javascript enabled to view it

CEP Newswires - CEP News © 2008. All Rights Reserved. www.economicnews.ca

The Copying, Broadcast, Republication or Redistribution of CEP News Content is Expressly Prohibited Without the Prior Written Consent of CEP News.

A copy of CEP News disclaimer can be found at http://www.economicnews.ca/cepnews/wire/disclaimer.