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Stocks fall modestly in early trading

July 29, 2009|Associated Press

NEW YORK — An economic reality check is cooling the stock market's rally.

Stocks ended little changed Tuesday as a key barometer of consumer confidence and a handful of disappointing earnings reports reminded investors that an economic recovery this year is far from assured. The Dow slipped 11 points, while the Nasdaq composite index posted a small gain.

Trading was more erratic Tuesday than the last two days. However, in all three days the major indexes closed with only modest changes. Investors remain cautious but aren't willing to give up on a rally that has propelled stocks 11% in little more than two weeks.

Stocks started to slip after the Conference Board said its consumer confidence index fell more than expected, fanning worries that bleak expectations among consumers and the rising jobless rate would hamper the economy's ability to rebound from the recession.

Meanwhile, corporate earnings reports, which beat meager expectations earlier this month, suggested that many consumers remain either unwilling or unable to spend. Office supplies retailer Office Depot and handbag maker Coach had trouble drawing in customers during the second quarter.

If consumers don't step up spending, companies will find it hard to chalk up the revenue gains they need to truly recover. The recent string of stronger corporate profits largely has come from deep cost-cutting, which can lift earnings only for so long.

However, the third upbeat reading on the housing market since last week and deal-making in the technology industry helped temper the market's disappointment.

Even without the latest worries about consumers, analysts have been anticipating a pause in buying after this month's surge, which restarted a massive rally that began in March. The advance fizzled in mid-June on lackluster economic reports.

John Merrill, chief investment officer of Tanglewood Wealth Management in Houston, said some institutional investors are pouring money into stocks in an effort to keep pace with a 44.8% rally in the S&P 500 index since March 9 and not get left behind.

"That kind of gives a nice give-and-take with nobody motivated to strongly sell and nobody motivated to strongly buy," he said.

The Dow finished down 11.79, or 0.1%, to 9,096.72 after being down as much as 101 points. It was the blue chips' first loss after four days of gains and only the fifth down day of the month.

The broader Standard & Poor's 500 index fell 2.56, or 0.3%, to 979.62. The Nasdaq composite index rose 7.62, or 0.4%, to 1,975.51 after several technology companies announced acquisitions.

Falling stocks narrowly outpaced those that rose on the New York Stock Exchange, where consolidated volume came to 5.6 billion shares, compared with 4.7 billion Monday.

Bond prices were mixed after a Treasury Department auction of two-year notes generated lackluster demand. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.69% from 3.71%.

Investors are anxious about government debt auctions because weak demand could force Washington to entice buyers with higher interest rates. That could hurt an economic rebound by increasing borrowing costs for consumers.

In other market highlights:

* Office Depot said consumers and small businesses continued to pare spending, especially on items like furniture and computers. Shares tumbled 97 cents, or 18.1%, to $4.38.

* Coach dropped 38 cents to $28.05 after earnings fell 32%.

* Textron gained $1.96, or 17.6%, to $13.11 after the maker of Cessna planes and Bell helicopters posted a profit excluding charges. Analysts had expected a loss.

* Deal-making in the tech industry was welcomed. IBM agreed to buy software maker SPSS for $1.2 billion. SPSS rose $14.36, or 40.9%, to $49.45; IBM fell 35 cents to $117.28.

The dollar was mixed, and gold prices fell. Light, sweet crude fell $1.15 to settle at $67.23 a barrel on the New York Mercantile Exchange.

The Russell 2000 index of smaller companies rose 1.07, or 0.2%, to 551.95.

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