Economic, Euro Fears Break 3-Day Rally on Wall Street

FOX Business: The Power to Prosper

The stock market closed out the session in the red, but well off of intraday lows, snapping a three-day winning streak after global economic concerns, coupled with a lack of confidence in the euro zone's plan to deal with its financial crisis, weighed on sentiment.

Today's Markets

The Dow Jones Industrial Average slid 77 points, or 0.67%, to 11,406, the S&P 500 dipped 11.7 points, or 0.97%, to 1,193 and the Nasdaq Composite slumped 31.8 points, or 1.2%, to 2,523. The FOX 50 slumped 7.2 points to 859.

The blue chips had a stellar three-day rally, leaping more than 7.2%, and recovering from a massive selloff.  However, a mixture of concerns domestically and abroad sapped Wall Street's confidence on Tuesday.

The financial sector has been among the most volatile in recent days.  After leading a rally on Monday, financials like JPMorgan (NYSE:JPM) and Goldman Sachs (NYSE:GS) dragged the markets lower. Retailers like Target (NYSE:TGT) and Gap (NYSE:GPS) did, however, manage to eke out modest gains.

European Fears Persist

French President Nicolas Sarkozy and German Chancellor Angela Merkel met on Tuesday, and announced a new euro zone economic council.  The leaders also said they would back the euro, and want all euro zone countries to have amend their constitutions to force fiscal constraint and balanced budgets.

However, market participants expected more specific guidelines on the  17-member group would work to stem the burgeoning financial crisis. It was also widely expected that France and Germany would agree to so-called eurobonds that would be backed jointly by all euro zone members, essentially creating a situation where stronger economies help underwrite weaker ones, which analysts said may have helped bring confidence back into European credit markets.

"It is always dangerous to get your hopes up especially when it comes to Europe," Tim Mulholland, managing director at China-American Capital Company, told FOX Business.

Germany's economy expanded at a rate of 0.1% in the second quarter, far below estimates of a 0.5% growth rate.  The report was "clearly disappointing," Thorsten Polleit, an analyst at Barclays Capital wrote in a note to clients, adding it presents a downside risk to the bank's forecast for full-year economic expansion.

As Europe's biggest economy, a slowdown in Germany may foreshadow broader issues for the European economic recovery. Indeed, the euro zone economy as a whole expanded at 0.2% for the quarter, weaker than the 0.3% economists had anticipated, taking a hit from soft German and French growth.

"With the major European power houses releasing such muted figures, the bears are once again flexing their muscles," wrote Will Hedden, a sales trader at IG Index, a London-based trading firm.

Traders once again sought refuge in gold as equity prices skidded.  The precious metal soared $27.00, or 1.5%, to $1,785 a troy ounce.

U.S. Debt And Data

After a downgrade by Standard & Poor's sparked an enormous selloff last week, Fitch re-affirmed the United States' top-notch triple-A credit rating.

"The affirmation of the US 'AAA' sovereign rating reflects the fact that the key pillars of US's exceptional creditworthiness remains intact: its pivotal role in the global financial system and the flexible, diversified and wealthy economy that provides its revenue base," Fitch said in a statement.

Fitch and Moody's now have the U.S. rated at triple-A, while S&P has America rated AA-plus.

Also on the domestic front, industrial production rose 0.9% in July, topping forecasts of a gain of 0.6%. The better-than-expected gain was driven by automakers, who have been rebounding from the effects of the devastating earthquake and economy that slammed Japan in March.

New housing starts fell 1.5% in July to an annualized rate of 604,000, slightly better than forecasts of 600,000.  Permits to build new homes slid 3.2% to an annualized rate of 597,000, worse than the 605,000 Wall Street anticipated. The homebuilding industry has been negatively affected by a glut of supply and still weak demand.

Import prices climbed 0.3%, a bigger increase than the 0.1% analysts expected, while export prices fell 0.4%, compared with expectations of a 0.1% increase

Energy markets were in the red amid worries a weakening economic growth picture would soften oil demand. Meanwhile, in currencies, the euro fell 0.57% against the U.S. dollar and the greenback rose 0.38% against a basket of world currencies.

Light, sweet crude slumped $1.23, or 1.4%, to $86.65 a barrel. Wholesale RBOB gasoline slid 2 cents, or 0.72%, to $2.85 a gallon.

Corporate News

Home Depot (NYSE:HD) boosted its full-year earnings forecast to $2.34 a share from $2.24 on rising sales, and posted quarterly profits of 86 cents a share that topped estimates by 3 cents.

Wal-Mart (NYSE:WMT) unveiled second-quarter earnings of $1.12 a share, excluding one-time costs, besting estimates of $1.08.  The world's largest retailer also posted a 0.9% decline in stores open at least a year -- the ninth-straight decline.

Foreign Markets

The English FTSE 100 rose 0.13% to 5,358, the French CAC 40 slid 0.25% to 3,231 and the German DAX slumped 0.45% to 5,995.

In Asia, the Japanese Nikkei 225 gained 0.23% to 9,107 and the Chinese Hang Seng dipped 0.24% to 20,212.