US stocks fall on European economic, debt worries

Posted Aug. 16, 2011, at 6:35 p.m.

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.

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