NEW YORK – Stocks are down sharply after Spain suffered another downgrade to its credit rating. The move by Fitch Ratings is raising concerns about the health of Europe's economy.
The Dow Jones industrials are down about 120 points on very light volume. Fitch's action follows a similar downgrade by Standard & Poor's earlier this month. Greece and Portugal have also seen their debt ratings lowered.
The euro, the currency shared by 16 European countries, is also falling. The euro is seen as a symbol of confidence — or lack of confidence — in the European economy, so its drop is contributing to the slide in stocks.
The euro is down at $1.2316.
The Dow Jones industrial average is down 122.13, or 1.2 percent, to 10,136.55. The Standard & Poor's 500 index is down 13.69, or 1.2 percent, to 1,089.37, while the Nasdaq composite index dropped 28.94, or 1.3 percent, to 2,248.74.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
NEW YORK (AP) — Stocks fell Friday as the market closed out its worst month in more than a year.
The Dow Jones industrials fell about 50 points on very light volume as many traders started a long holiday weekend. Their absence was expected to skew price moves somewhat during the course of the day.
Investors were also taking money out of the market to play it safe ahead of the weekend, especially since overseas markets will be trading on Monday when U.S. exchanges are closed for Memorial Day.
There's "a little bit of profit taking from yesterday because who knows what can happen over the next three days," said Brian Peardon, a wealth adviser at Harrison Financial Group in Citrus Heights, California. He referred to Thursday's rally that sent the Dow up 285 points.
May was difficult for the stock market as persistent and intensifying worries about Europe's debt problems sent the Dow down 7 percent. The average was heading toward its worst monthly performance since February 2009, the month before stocks began their recovery from 12-year lows. The Dow also looked to have its biggest May drop since 1962.
A mixed report on personal spending and income Friday discouraged investors from extending Thursday's rally.
Despite Friday's drop, there was more stability in the market after a vote of confidence that China gave Thursday about Europe's debt. The Chinese government denied a report that it was reconsidering its investments in European countries' debt. That came as welcome news to traders who have sold stocks heavily this month on fears that Europe's economic growth would be stunted as countries cut their budgets and pay down their massive debts over the next few years. The worry in the stock market is that a slowdown in Europe would curb the recovery in the U.S.
Throughout May, stocks have been tracking the euro, the currency shared by 16 European nations and that has become a gauge of confidence for Europe's economy. The euro hit a four-year low and was down as much as 9 percent during the month. The euro fell modestly again Friday, dropping to $1.2353.
In midday trading, the Dow Jones industrial average fell 50.07, or 0.5 percent, to 10,208.99. The Standard & Poor's 500 index fell 5.61, or 0.5 percent, to 1,097.45, while the Nasdaq composite index dropped 15.75, or 0.7 percent, to 2,261.93.
About three stocks fell for every two that rose on the New York Stock Exchange, where volume came to 427.4 million shares traded.
If traders can set aside their worries about Europe, they might start paying more attention to the domestic economy than they did during May. The first week of June will bring a series of big economic reports, including the Labor Department's May employment report and readings on manufacturing, consumer spending and housing.
"Barring any unexpected foreign developments, the market will (begin to again) look at domestic economic reports," said Joe Heider, a principal at Rehmann in Cleveland. "Fundamentals of the U.S. economy indicate we're still in recovery."
If there are any signs that the U.S. economy is being affected by news of Europe's problems — for example, if consumers seemed to be spending less — investors are likely to start selling again. And if the jobs report is disappointing, the market is also likely to suffer.
Moreover, the market will probably slide on any news signs that European countries including Greece, Portugal and Spain are having debt problems.
A report Friday showed that the U.S. recovery might be slowing a bit. The Commerce Department said consumer spending was flat in April, compared with the previous month. Economists polled by Thomson Reuters had forecast spending would rise 0.3 percent. It was the first time in seven months that spending had not risen in a month, indicating that consumers are still somewhat tentative about the health of the economy.
Personal income rose 0.4 percent, slightly worse than the 0.5 percent growth forecast by economists.
"This month was damaging to the psychology of investors, so consumption may taper in the near term," said Jamie Cox, managing director at Harris Financial Group in Richmond, Va.
Cox said consumers are more tentative after last year's market drop and recession, so they are more likely to cut back quickly at any signs of economic weakness. Investors, particularly retail investors, are also more likely to sell stocks at the first sign of a pullback, he said.
"We're not far enough removed from the 2009 drop," Cox said. "People are saying 'not again.'"
A measure of consumer confidence was revised slightly higher. The Reuters/University of Michigan consumer sentiment index rose to 73.6 from a preliminary May reading of 73.3. Still the index is at nearly the same level it was three months ago.
The Chicago Purchasing Managers Index, a measure of manufacturing activity in the Midwest, fell to 59.7 in May from 63.8 last month. Economists had forecast the index would fall to 62.
With investors pulling out of stocks, bond prices rose modestly. The yield on the benchmark 10-year Treasury note, which moves opposite its price, fell to 3.32 percent from 3.36 percent late Thursday.
The Russell 200 index of smaller companies fell 6.59, or 1 percent, to 663.92.
MILAN – How low can the euro go? Many economists think the 16-country currency is headed for a significant decline because of Europe's government debt crisis.
Some are even predicting that by next year the euro will sink to what's called parity against the U.S. dollar — euro1 equals $1, a level last seen in July 2002 and an 18 percent slide from Friday's $1.23.
Such a decline would take some of the shine off Europe's vaunted project in a shared currency. And it would cut Europeans' purchasing power for imports. But if it happens gradually enough, the slide in the euro's exchange rate could help exports and provide the boost Europe's troubled economy needs.
Export-focused companies would be more competitive on price outside the eurozone, likely boosting their revenue and helping to remove the threat that Europe will drag down the global economy and stock markets.
With a lower euro, Parisian hotel owners could sell more Left Bank hotel rooms to tourists from North America, while Italy would surely sell more shoes and textiles. And Spain just might be able to turn over some of that vacant seaside property left from a U.S.-style real estate bubble.
And since China and other Asian countries link their currency to the dollar, the euro would weaken in that direction as well and help trade with Asia.
All that would come as a relief to U.S. officials and investors, who have seen Europe's troubles weigh on stocks and expectations for the world economy in the past several weeks.
Exports have been a key factor lifting Europe out of recession. In the fourth quarter of 2009, exports from the eurozone rose 1.9 percent over the prior quarter and totalled euro838 billion — or 36 percent of eurozone economic output.
That trend continues; the zone's exports rose 22 percent to euro134.9 billion in March, up from euro110.3 billion a year earlier, according to EU statistics.
European governments slowed the euro's the slide by agreeing on a euro110 billion bailout for Greece and a backstop of up to $1 trillion for other indebted governments. But that has not erased longer-term skepticism remains about countries' ability to pay down heavy debts, or about whether all 16 members will remain in the euro. Many think Greece, which needed a bailout to avoid defaulting on a May 19 debt repayment, will eventually have to restructure by seeking more favorable repayment terms.
End of the year forecasts for the euro range anywhere from $1.15 to $1.22. One of those seeing $1.00 in 2011 is BNP Paribas currency strategist Hans Redeker.
"There are a lot of negative events taking place and that means the euro is going to stay under pressure for the time being," Redeker said. "But at the end of the day, we need a substantially undervalued euro to keep the euro zone together."
"That means a very weak euro is part of the survival strategy of the EU 16. We need a period of severe undervaluation of the euro."
Unicredit's chief economist Marco Annunziata sees a one in five chance of parity. "The standard argument is that it is not the actual level of the exchange rate, but it more the speed that the exchange rate moves that gets policy makers nervous," Annunziata said.
Commerzbank bank's outlook is for $1.22 by the end of the year — but said it could reach parity with the dollar if unexpected shocks hit the markets. "Experience teaches us that exceptional factors can have considerable effects," Commerzbank wrote.
A lower euro could help offset the dampening effects of spending cuts and tax increases already put in place or being considered by countries such as Greece, Portugal, Spain and Italy. These austerity moves are being taken to insure against the nightmare scenario where investors refuse to buy new issues of government debt in the weaker euro nations like Greece, Portgal, Spain and Italy, triggering default and an even larger decline in the euro.
Economists warn however that more than bailouts, more than cuts in spending, what the euro needs are structural reforms to get investors on their side. Those include stricter rules on controlling deficits so it doesn't happen again, and cutting the burdensome regulations on hiring and firing that discourage job creation — especially in the southern countries.
"It is very difficult to stop the slide until they can convince people that they can turn the economies on Europe's periphery to growth," Barcelona-based independent economist Edward Hugh said. "Investors are increasingly taking the view that the more difficult it is to return these economies to growth, the more difficult it is to hold this together in its present form. No one wants to hold currency in economies that may not be stable."
Italian Premier Silvio Berlusconi acknowledged that when Italy had the lira instead of the euro, it would deal with trouble by letting its currency devalue.
That option isn't available due to euro membership. But IHS Global Insights Raj Badiani says Italy's getting just about the same benefits from the euro's slide, anyway.
The weaker euro is very good news for Italian firms as they trade outside the eurozone. "The current eurozone debt resembles a typical pre-euro crisis in Italy, which would lead to an inevitable sharp fall in the lira, helping to conjure up an export-led recovery in Italy," Badiani said.
At the other end of the economic scale, powerhouse Germany will get less of an export boost, because its products are more quality driven, and not as susceptible to currency fluctuations. But lower value-added goods such as textiles, apparel, shoes and light manufacturing may benefit most.
A euro value around $1.20, Badiani said, helps "Italian producers to compete more effectively both at home and abroad."
Keller reported from Paris.
NEW ORLEANS – Intent on showing firm command of the deepening crisis in the Gulf of Mexico, President Barack Obama flew to coastal Louisiana Friday for his second in-person update of the devastating oil spill.
Criticism of Obama is rising as crude continues to gush out of the leak 38 days after the oil rig exploded and sank. Amid fears the crisis that is endangering the Gulf region's wildlife and economy could soon also engulf his presidency, Obama has launched a campaign to step up public engagement and directly confront the public's anger.
A day earlier, he held a rare White House news conference to address the matter, saying "I take responsibility" for handling what is now considered the biggest oil spill in U.S. history.
On Friday, he interrupted a Memorial Day weekend stay with his family at their Chicago home for the Gulf visit, with his first stop a beach south of New Orleans where protective booms have been set up to keep oil from washing ashore. The president was then traveling to the U.S. Coast Guard Station in nearby Grand Isle, La., to attend a briefing by Adm. Thad Allen of the Coast Guard, who is overseeing the spill response for the federal government. Obama was being joined there by the governors of Louisiana, Florida and Alabama. He was spending about three hours in the region.
THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.
NEW ORLEANS (AP) — President Barack Obama is the Gulf Coast, ready for a firsthand look at the devastating oil spill and a briefing on how to clean it up.
Obama touched down at Louis Armstrong New Orleans International Airport at midmorning local time.
He plans to tour a beach with Coast Guard Admiral Thad Allen and visit with local officials. Obama's visit comes a day after a White House news conference where he asserted responsibility over the spill. The trip was designed to demonstrate his engagement.
Obama arrived 38 days into the disaster, as BP worked to plug the leak with heavy mud. That procedure is expected to continue for a couple days before its outcome is clear.