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Stocks weaken as US govt lowers growth estimate

Tue, 11/22/2011 - 6:45am
MATTHEW CRAFT - AP Business Writer - Associated Press

Stock indexes fell Tuesday after the U.S. government lowered its estimate of economic growth in the second quarter. Higher borrowing costs for Spain also renewed worries about Europe's debt crisis.

Hewlett-Packard Co. sank 4 percent, dragging down the Dow Jones industrial average. H-P lowered its earnings forecast for the 2012 fiscal year after the market closed Monday. The tech giant said it was being "cautious," citing Europe's debt crisis and weak consumer spending.

The Commerce Department said the U.S. economy grew at a 2 percent annual rate in the July-September period, down from its initial estimate of 2.5 percent. That was a disappointment for investors since economists expected the figure to remain unchanged.

The Dow Jones industrial average was down 70 points, or 0.6 percent, at 11,476 as of 11:15 a.m. After H-P, aluminum maker Alcoa Inc. had the biggest fall among the 30 stocks in the index, 2.3 percent.

The Standard & Poor's 500 index fell 7 points, or 0.6 percent, to 1,185. Energy and technology companies led the index lower.

The S&P is headed for its fifth straight decline, which would be its longest losing streak since August. Stocks have been mostly sliding over the past week on worries that Spain could get dragged into Europe's debt crisis and as Congress neared a deadlock over cutting the U.S. budget deficit.

The Nasdaq composite lost 16, or 0.6 percent, to 2,507.

The Dow plunged 249 points Monday as a congressional committee failed to reach a deal to cut budget deficits. The congressional impasse raised fears that rating agencies might lower the U.S. government's credit rating.

After the market closed Monday, the major agencies said the country's credit rating was unaffected by the news, but Standard & Poor's also said its current rating is based on the expectation that automatic cuts will start in 2013. Some Republicans have said they would block the defense spending cuts.

Across the Atlantic, there were more signs of trouble in Europe's debt crisis. Spain was forced to pay sharply higher interest rates in an auction of short-term debt. The higher rates suggest that investors are still skeptical that the country will get its budget under control despite a new, center-right government coming to power this week.

Investors have been worried that Spain could become the next country to need financial support from its European neighbors if its borrowing rates climb to unsustainable levels. Greece was forced to seek relief from its lenders after its long-term borrowing rates rose above 7 percent on the bond market. The rate on Spain's own benchmark 10-year bond is dangerously close to that level, 6.58 percent.

In other trading, Netflix Inc. sank 3.6 percent. The online video rental company said it raised $400 million from selling debt and stock as it tries to recover from a consumer backlash following price hikes.

Campbell Soup Co. sank 6.2 percent, the most in the S&P 500 index, after reporting a 5 percent drop in income. The company said price increases were not enough to offset lower volume in its soup and beverage businesses.

Medtronic Inc. rose 3.5 percent. The world's largest medical device maker reported higher-than-expected earnings and reaffirmed its full-year earnings outlook.

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