US stocks fall on European economic, debt worries

STAN CHOE

AP Busi­ness Writer

NEW YORK — Wor­ries about Europe’s eco­nomic and debt prob­lems sent stocks Tues­day to their first loss in four days.

The major indexes bounced up and down in another volatile day. The Dow Jones indus­trial aver­age fell more than 120 points in the first half hour of trad­ing after a report showed that Germany’s econ­omy stalled last quar­ter and dragged down growth for Europe.

The Dow recov­ered and had a slight advance at mid­day, but resumed its drop after the lead­ers of France and Ger­many tried to calm wor­ries about Europe’s debt prob­lems by push­ing for long-term polit­i­cal solu­tions. Investors were hop­ing for imme­di­ate finan­cial mea­sures like the intro­duc­tion of a sin­gle bond jointly backed by the eurozone’s mem­bers. The Dow fell as many as 190 points in the early after­noon before again recovering.

At the close, the Dow was down 76.97, or 0.7 per­cent, to 11,405.93. It was the first time in seven trad­ing days that the Dow rose or fell by less than 100 points. The Stan­dard & Poor’s 500 index fell 11.73, or 1 per­cent, to 1,192.76. The Nas­daq com­pos­ite fell 31.75, or 1.2 per­cent, to 2,523.45.

“The real ques­tion the mar­ket is try­ing to answer is: Are we going to have another reces­sion or not?” said John Burke, head of Burke Finan­cial Strate­gies with $200 mil­lion in assets under man­age­ment. “Today, the answer is maybe yes, because it doesn’t look like Europe has fig­ured out a solu­tion to its debt.”

A pro­posal for a Europe-wide tax on finan­cial trans­ac­tions also hurt stocks, said Nick Kali­vas, vice pres­i­dent at bro­ker MF Global. “It’s another slap in the face to the bank­ing sys­tem” and would cut into prof­its and limit trad­ing, he said. “The path toward eco­nomic growth still looks pretty uncertain.”

The day’s trad­ing showed how crit­i­cal eco­nomic devel­op­ments about Europe have become to U.S. investors. But Tuesday’s losses were mod­er­ate and pointed to some sta­bil­ity in the mar­ket after the sell­ing that sent the S&P 500 down 17 per­cent from July 21 to last Wednesday.

In the U.S., eco­nomic reports Tues­day were mixed: Hous­ing remains weak, but fac­tory out­put rose last month at its fastest pace since an earth­quake in Japan dis­rupted global man­u­fac­tur­ing in March.

“Investors don’t know which way to go here,” said Paul Brig­andi, senior vice pres­i­dent of Direx­ion Funds, which has about $7 bil­lion in assets under management.

On one side, he said buy­ing looks attrac­tive because stocks are cheaper after the recent plunge.And more U.S. com­pa­nies on Tues­day joined the stream of those that have reported earn­ings above ana­lysts’ expec­ta­tions. But on the other side, sell­ing looks appeal­ing because of wor­ries about the global econ­omy and debt prob­lems in the United States and Europe.

Prices for gold and Trea­surys rose as money moved into invest­ments con­sid­ered safer. Oil fell on wor­ries that a weaker econ­omy will mean less demand for energy.

Fitch Rat­ings said Tues­day it will keep its credit rat­ing on the United States at the top grade. Two of the three major credit-rating agen­cies now have stood by their AAA grade of U.S. debt. Stan­dard & Poor’s down­graded the U.S. on Aug. 5. That sent stocks on a volatile slide last week.

Europe’s econ­omy and debt trou­bles have been among global investors’ main con­cerns over the last year and a half. On Tues­day, the Euro­pean Union reported that eco­nomic growth in the 17 coun­tries that use the euro slowed to 0.2 per­cent between April and June from 0.8 per­cent the pre­vi­ous quar­ter. Germany’s growth fell to 0.1 per­cent from 1.3 percent.

That will make it even tougher for Spain and other coun­tries to raise rev­enue. Some Euro­pean coun­tries have bor­rowed so much that they may need help repay­ing debt.

French Pres­i­dent Nico­las Sarkozy and Ger­man Chan­cel­lor Angela Merkel called for a “new eco­nomic gov­ern­ment” for Europe and said all coun­tries that use the euro should have manda­tory bal­anced bud­gets and bet­ter coor­di­na­tion of eco­nomic pol­icy. They also pledged to har­mo­nize their cor­po­rate taxes to show they are “march­ing in lock­step” to pro­tect the euro.

In the U.S., the gov­ern­ment reported that home­builders are still stuck in their years-long slump. They broke ground on new homes at an annual rate of 604,000 last month, accord­ing to the Com­merce Depart­ment. That’s down from 613,000 in June. In 2005, before the hous­ing bub­ble burst, hous­ing starts were typ­i­cally above 2 million.

Man­u­fac­tur­ing may be recov­er­ing. The Fed­eral Reserve said indus­trial pro­duc­tion rose 0.9 per­cent last month on a pickup at auto fac­to­ries, util­i­ties and mines. Man­u­fac­tur­ing was one of the strongest indus­tries after the reces­sion ended in 2009, but its growth has slowed this year.

Wal-Mart Stores Inc. rose 3.9 per­cent after it said net income rose 5.7 per­cent last quar­ter from a year ago on strong over­seas sales. Earn­ings growth was stronger than ana­lysts expected, and the world’s largest retailer raised its profit fore­cast for the year.

Home Depot Inc. rose 5.3 per­cent after it said second-quarter net income rose 14 per­cent and raised its profit forecast.

Investors have largely ignored the strong earn­ings that com­pa­nies have reported for the sec­ond quar­ter. Those in the S&P 500 index earned a record amount per share last quar­ter on an oper­at­ing basis, which ignores one-time costs and other spe­cial items, accord­ing to S&P senior index ana­lyst Howard Silverblatt.

Investors have been over­whelmed by the market’s volatil­ity, said Tim Hol­land, port­fo­lio man­ager of the Aston/Tamro Diver­si­fied Equity fund. “When you have these big swings, peo­ple com­pletely lose focus on com­pa­nies and their results. They’re pay­ing more atten­tion to the mar­ket than the com­pa­nies that make up the mar­ket. The earn­ings sea­son was good and bet­ter than expected.”

Hol­land said com­pa­nies also have health­ier bal­ance sheets than dur­ing the finan­cial cri­sis of 2008. He has been buy­ing stocks that are cheaper fol­low­ing the market’s plunge. “We like to buy the best when they’re depressed,” he said.

Energy stocks in the S&P 500 fell 1.7 per­cent after oil fell $1.23 per bar­rel to set­tle at $86.65.

NYSE Euronext Inc. fell 8.4 per­cent for the biggest loss among stocks in the S&P 500 on wor­ries that a pos­si­ble Euro­pean financial-transaction tax could hurt its profits.

Saks Inc. fell 4.6 per­cent after it said it’s going into the fall sea­son “a bit more cau­tiously.” Its higher-income cus­tomers have been spend­ing more, because they’re more pro­tected from the weak job mar­ket than middle-income Amer­i­cans. But the volatile stock mar­ket could hurt wealthy shop­pers’ confidence.

The yield on the 10-year Trea­sury note fell to 2.22 per­cent from 2.31 per­cent late Mon­day as investors moved into things con­sid­ered safer. A bond’s yield falls when its price rises. The 10-year yield fell to a record low of 2.03 per­cent last week.

Gold rose $27 per ounce to set­tle at $1,785. Last week, it rose above $1,800 for the first time.

Nearly three stocks fell for every one that rose on the New York Stock Exchange. Trad­ing vol­ume at 4.5 bil­lion was close to its aver­age over the last year of 4.3 billion.

The Dow rose 213 points Mon­day after a series of acqui­si­tions led by Google’s $12.5 bil­lion pur­chase of Motorola Mobil­ity. Its rise of 763 points over three days was the Dow’s biggest since Novem­ber 2008, dur­ing the depths of the finan­cial crisis.

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