Markets slip, ending 3-day rally

More evidence of a slowing global economy sent stocks downward Tuesday ending the market's three-day rally.

The Dow closed down 77 points, 0.7 percent, at 11,405.9. The Standard & Poor's 500 index fell 11.7 points, 1.0 percent, to 1,192.8. The Nasdaq composite fell 31.75, 1.2 percent, to 2,523.5

Germany reported its economy stalled this past quarter and dragged down growth for Europe. In the United States, economic reports were mixed: New housing starts remain weak, but factory output rose last month at its fastest pace since an earthquake in Japan disrupted global manufacturing in March.

The major indexes bounced up and down as investors took in the news from Europe. Dow Jones industrial average fell more than 120 points in the first 30 minutes of trading before paring most of its losses by noon.

Stocks resumed their drop after the leaders of France and Germany tried to calm worries about Europe's debt problems by pushing for long-term political solutions. But the markets were looking for immediate financial measures like a single European bond. The Dow was down as many as 190 points shortly after 1 p.m. before again paring its losses.

Stocks look cheaper after the S&P 500's 10.4 percent drop from July 21 to Monday. And more U.S. companies on Tuesday joined the stream of those that have reported earnings above analysts' expectations. But investors are still worried about the global economy and debt problems in both 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 also 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.

The U.S. Commerce Department reported that home builders are still stuck in the years-long slump. Builders 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. Industrial production rose 0.9 percent last month on a pickup at auto factories, utilities and mines. Manufacturing had been one of the strongest industries since the recession ended in 2009, but its growth had been slowing this year.

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 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 that not only are companies making more money, they have healthier balance sheets than during the financial crisis of 2008. He has been buying stocks made cheaper by the downturn. "We like to buy the best when they're depressed," he said.

The Dow rallied 213 points on Monday after a series of acquisitions, highlighted by Google's $12.5 billion purchase of Motorola Mobility. It marked the Dow's first three-day gain since July 1. Its rise of 763 points over the three days was the Dow's biggest since November 2008, during the depths of the financial crisis.

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