Stocks yesterday had their biggest and broadest rally of the year as modest growth in the gross domestic product and a drop in oil prices...

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NEW YORK — Stocks yesterday had their biggest and broadest rally of the year as modest growth in the gross domestic product and a drop in oil prices spurred investors to at least temporarily set aside their inflation fears.

All three major market indexes saw their biggest one-day point gains since Dec. 1, with the Dow Jones industrial average gaining more than 135 points.

According to the Commerce Department, fourth-quarter GDP — the total of all goods and services produced in the U.S. — grew at an annual rate of 3.8 percent, less than the 4 percent economists had forecast.

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The department’s price index rose 2.9 percent for the quarter, more than Wall Street had expected, but that was offset by increases in consumer spending and capital expenditures by businesses.

Along with an upbeat report on the nation’s oil reserves, the GDP report prompted Wall Street’s strongest day of 2005 on heavy volume of 2.18 billion shares as investors picked up bargains in a heavily sold-off market. Advancing issues outnumbered decliners by more than 2 to 1 on the New York Stock Exchange.

“Normally you wouldn’t see this GDP report as a good thing, but with inflation out there, a little bit less growth is viewed as a positive,” said Larry Peruzzi, senior equity trader at The Boston Company Asset Management. “It cools things down just enough, without getting too cold.”

The Dow rose 135.23, or 1.3 percent, to 10,540.93. The Northwest’s two Dow components also rose: Microsoft climbed 24 cents, or 1 percent, to $24.16, and Boeing surged $1.54, or 2.7 percent, to $58.79.

Broader indicators also gained ground. The Standard & Poor’s 500 index was up 16.05, or 1.38 percent, at 1,181.41, with all two dozen industry groups gaining.

The Nasdaq composite index gained 31.79, or 1.61 percent, to 2,005.67, after falling to a five-month low Tuesday. The Nasdaq closed above the psychologically important 2,000 mark for the first time since March 21.

The three indexes are still down for the year, however. The Dow is off 2.2 percent; the S&P 500, 2.5 percent; and the Nasdaq, 7.8 percent.

The drop in oil prices came after the Energy Department reported a 5.4 million-barrel increase in the nation’s crude-oil reserves. Light, sweet crude futures fell 24 cents at $53.99 per barrel on the New York Mercantile Exchange, though oil prices dropped as low as $52.50 per barrel earlier in the session.

Investors were also looking ahead to two economic reports tomorrow — the Labor Department’s March employment figures and the Institute for Supply Management’s monthly report on the industrial sector.

Economic data, particularly about jobs, are closely watched as the Federal Reserve plots its rate-tightening policy. Wall Street is eager to know whether the next rate increase will be a quarter- percentage-point move like all the others, or a more aggressive half-point rise. Fed policy-makers will next meet May 3.

“It’s hard to see a sustainable advance with the precarious nature of interest rates here and how they’re moving higher. Who’s to say when that stops?” asked Steven Goldman, chief market strategist with Weeden & Co. in Greenwich, Conn.

“Until we get a handle on what’s going on with rates it’s difficult to know what’s next, and that puts a bit of a lid on stocks.”

Information from The Associated Press and Bloomberg News is in this report.