Posted by: Schuyler R. Thorpe | August 27, 2011

Stocks Slump As Economic Concerns Grow

Stocks slump as concerns about economy grow

NEW YORK (AP) — The stock market stumbled again Tuesday and is on pace for its longest losing streak in two years.

The Dow Jones industrial average dipped below 12,000 and the Standard & Poor’s 500 index lost nearly all of its gains for the year by the early afternoon.

Even as the debt-ceiling bill passed in the Senate, all three major stock indexes fell as investors reacted to more signs of weakness in the U.S. economy and poor earnings from several big companies.

The Commerce Department reported that consumers cut their spending in June for the first time in nearly two years. Analysts had predicted a slight increase. Incomes also rose by the smallest amount since September, reflecting a weak job market. The report comes a day after a weak manufacturing report and last Friday’s report that the economy grew at its slowest pace in the first half of the year since the recession ended in June 2009.

“The market is starting to wonder where the growth is going to come from,” said Nick Kalivas, a vice president of financial research at MF Global. “It hasn’t hit the panic button yet, but that’s where we’re drifting.”

The S&P 500 fell 22 points, or 1.7 percent, to 1,265 in afternoon trading. It is now up only 0.6 percent for the year.

The Dow lost 170 points, or 1.4 percent, to 11,962. The Nasdaq composite fell 50, or 1.8 percent, to 2,694.

All but one of the 30 stocks in the Dow lost ground. General Electric Co., Pfizer Inc. and United Technologies Corp. led the index lower with losses of 3 percent or more.

The S&P index has fallen for seven straight days, its longest string of losses since the middle of the financial crisis in October 2008. It is down nearly 7 percent since reaching a high for the year of 1,363 on April 29.

The Dow has lost fallen for eight straight days. In that span, it has lost about 730 points, or nearly 6 percent.

Archer Daniels Midland Co. dropped nearly 4 percent after the agricultural conglomerate said it missed Wall Street’s profit forecasts. High-end retailer Coach Inc. lost nearly 6 percent after the company said margins declined, cutting into profits. A pullback in spending could threaten profits at the company, which is starting to make less from each purchase because of higher costs.

The signs of economic weakness pushed government debt prices higher. The yield on the 10-year Treasury again fell to a new low for the year of 2.63 percent from 2.75 percent Monday. Yields fall when bond prices rise. Gold, another asset investors buy when they’re worried about the direction of the economy, gained 1.4 percent to $1,645 an ounce.

The consumer spending pullback was the latest indication that the U.S. economy may be slowing. On Monday an early stock rally over relief that the House had passed a debt limit compromise was halted by a report that U.S. manufacturing barely grew last month, a much weaker showing than analysts had expected.

Many economists, including Federal Reserve Chairman Ben Bernanke, have said the U.S. economy would gain momentum in the second half of the year as gas prices fall and Japan’s factories recover from the earthquake disaster in March. Slow U.S. manufacturing growth, a weak job market and concerns about spending cuts in the debt deal have cast doubt on those predictions.

The growth of China’s and India economies have also slowed recently after their respective central banks raised interest rates. American corporations have counted on increasing profits in China as a way to make up for slower revenue growth in the U.S. Companies in the S&P 500 index are expected to make nearly half of their profits overseas in 2011.

President Barack Obama signed a compromise bill Tuesday to raise the country’s borrowing limit, hours ahead of a midnight deadline after which the U.S. government wouldn’t have enough money to pay all its bills. The passage of the bill averted the possibility of a default on U.S. debt.

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