After moving mostly higher over the course of the three previous sessions, stocks gave back some ground during trading on Tuesday. Selling pressure was relatively subdued, however, limiting the downside for the markets.
The major averages ended the session well off their worst levels of the day but still closed firmly in negative territory. The Dow dropped 76.97 points or 0.7 percent to 11,405.93, the Nasdaq fell 31.75 points or 1.2 percent to 2,523.45 and the S&P 500 slid 11.73 points or 1 percent to 1,192.76.
While stocks staged a notable recovery attempt after seeing initial weakness, selling pressing re-emerged amid comments from German Chancellor Angela Merkel and French President Nicolas Sarkozy that failed to ease recent worries about the European debt crisis.
Merkel and Sarkozy stressed that they were willing to defend the euro but dismissed calls for the issuance of euro zone bonds as part of an effort to resolve the debt crisis.
The issuance of euro zone bonds could even "hurt" the healthiest countries in the euro zone, according to Sarkozy, who also said that the size of a European sovereign rescue fund is already sufficient to deal with further shocks.
The remarks came on the heels of the release of a report from Eurostat showing weaker than expected second quarter GDP growth in the euro zone.
The report showed that GDP growth in the 17 countries that use the euro slowed to 0.2 percent in the second quarter from 0.8 percent in the first quarter. Economists had been expecting GDP to increase by 0.3 percent.
As mentioned above, however, selling pressure was relatively subdued in light of upbeat U.S. industrial production data and better than expected earnings news from Wal-Mart (WMT) and Home Depot (HD).
The Federal Reserve released a report showing that industrial production rose by 0.9 percent in July, exceeding economist estimates for a 0.5 percent increase. The increased reflected a jump in utilities output and a rebound in the production of motor vehicles and parts.
Paul Dales, Senior U.S. Economist at Capital Economics, said, "The healthy 0.9% m/m increase in U.S. industrial production supports our view that GDP growth in the third quarter will rebound a bit partly as the adverse effects from the Japanese disaster unwind."
Additionally, Wal-Mart advanced by 3.9 percent after reporting second quarter earnings from continuing operations of $1.09 per share, a penny above analyst estimates. The retail giant also forecast third quarter and full-year earnings in line with analyst estimates.
While most of the major sectors ended the session well off their worst levels of the day, significant weakness was visible among oil service stocks. Reflecting the weakness in the sector, the Philadelphia Oil Service Index fell by 2.6 percent.
The weakness among oil service stocks came amid a notable pullback by the price of crude oil, with crude for September delivery falling $1.23 to $86.65 a barrel.
Steel stocks also showed a sizable move to the downside on the day, dragging the NYSE Arca Steel Index down by 2.4 percent. Lingering concerns about the outlook for steel demand contributed to the pullback by the sector.
Considerable weakness was also visible among banking stocks, as reflected by the 2.2 percent loss posted by the KBW Bank Index. Financial services giants Bank of America (BAC) and Citigroup (C) turned in two of the sector's worst performances.
Networking, semiconductor, and electronic storage stocks also posted notable losses, while retail stocks bucked the downtrend on the heels of the news from Wal-Mart and Home Depot.
Other Markets
In overseas trading, stock markets across the Asia-Pacific region turned in a mixed performance on Tuesday. While Japan's benchmark Nikkei 225 Index edged up by 0.2 percent, Hong Kong's Hang Seng Index slipped by 0.2 percent.
The major European markets also ended the session mixed after seeing weakness for much of the day. The U.K.'s FTSE 100 edged up by 0.1 percent, while the French CAC 40 Index and the German DAX Index closed down by 0.3 percent and 0.5 percent, respectively.
In the bond market, treasuries showed a notable move to the upside on the heels of the comments from Merkel and Sarkozy. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 7.1 basis points to 2.214 percent.
Looking Ahead
Economic data is likely to attract some attention on Wednesday, with traders likely to keep an eye on the Labor Department's report on producer price inflation in the month of July.
Trading could also be impacted by earnings news from Dell (DELL), with the computer giant releasing its second quarter results after the close of trading.
Levels to Watch in Trading:
Dow Jones Industrial Average (DJIA – 11,405.93) - support at 10,500; resistance at 13,000
S&P 500 Index (SPX – 1,192.76) - support at 1,100; resistance at 1,400
Nasdaq Composite (COMP – 2,523.45) - support at 2,100; resistance at 2,900
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