Stocks Trim Gains on Weak Consumer Sentiment Data

NEW YORK— U.S. stocks pared their early gains on Friday as traders dissected mixed reports on consumer sentiment, retail sales and business inventories after a week of record-setting gains and losses on Wall Street.

The government says that consumers spent more on autos, furniture and gasoline in July, pushing up retail sales by the largest amount in four months. But a survey on consumer sentiment fell to its lowest level in more than 30 years. And a separate report showed that businesses increased their stockpiles in July by the smallest amount since May 2010.

Traders are already dizzy from seesaw trading driven by concerns about economic growth and a spreading financial crisis in Europe.

In midmorning trading, the Dow Jones industrial average rose 78 points, or 0.7 percent, to 11,222. The Standard & Poor's 500 index was up 6, or 0,5 percent at 1179. The Nasdaq composite index rose 5, or 0.2 percent, to 2,498.

If shares close higher, it will be the first time in more than a month that the market has risen two days in a row. The Dow and the S&P last rose for two trading days on July 6 and 7.

A bath of bad economic news has pummeled markets since before they started their long slide three weeks ago, on July 22. At Thursday's close, the Dow had fallen more than 12 percent since that date.

The strong retail sales added to a recent trend of more positive data about the economy. The government said last week that hiring picked up in July after two dismal months, though employers still are adding jobs too slowly to significantly reduce unemployment. On Thursday, the government said that applications for unemployment benefits had fallen to a four-month low.

But any gains are seen as fragile. If consumer sentiment remain weak, sales would likely slow.

Shares have swung by hundreds of points each day this week as traders react with hair triggers to news about the economy, Federal Reserve policy and a financial crisis in Europe that threatens to spill over into U.S. banks.

There is no question the sharp selloff in asset markets around the world over the past few weeks, on top of an already fragile economic picture, had a major influence on today's reading," wrote Peter Boockvar, managing director at Miller Tabak + Co., in a note to clients.

Retail sales climbed 0.5% in July, which was inline with estimates and the biggest gain since March. Excluding automobiles, sales climbed 0.5%, which was slightly better than forecasts of a gain of 0.2%.

"The consumer is at the center of the weak economy debate ... and as such, even a modestly better-than-expected number today provides us with some level of relief," Daniel Greenhaus, chief global strategist at BTIG, wrote in a note, referring to the closely-watched component that excludes automobile sales.

Retailers, such as Target (TGT: 47.89, +0.62, +1.31%) and Best Buy (BBY: 24.52, -0.43, -1.72%), can be particularly affected by these data, but it often has an impact on the broader markets.

Trading has been tumultuous in the last four trading sessions. The Dow has made 400-point gyrations higher and lower during every trading day this week -- for the first time in history. The Dow soared 423 points on Thursday, on the heels of a 520 points in violent trading where 100-point swings could happen in moments.

"The climate is fraught with risk," Peter Kenny, managing director at Knight Capital Group, wrote in a note, adding the instability has also created a slew of trading opportunities.

Wall Street paid close attention to headlines from Europe on Thursday, where media reports suggested certain large French banks may have capital issues. However, the banks denied the rumors, and on Friday, France, Italy, Spain and Belgium restricted short selling on affected issues, in a bid to stem the losses. The move sent European indicies soaring earlier in the session, and helped stock futures turn around.

The domestic economy has come into focus amid fears economic output and labor expansion may have hit a soft patch.

Gold, which has seen massive buying amid the volatility in equities, was fairly tame on Friday. The precious metal gained $3.40, or 0.2%, to $1,755 a troy ounce. In currencies, the euro gained 0.16% against the U.S. dollar, and the greenback slipped 0.13% against a basket of world currencies.

Energy futures were modestly higher. Light, sweet crude gained 2 cents, or 0.02%, to $85.71 a barrel. Wholesale RBOB gasoline climbed 2 cents, or 0.66%, to $2.85 a gallon.

Consumer gasoline prices have moderated following a downshift in wholesale markets. A gallon of regular costs $3.61 on average nationwide, down from $3.65 last month, but still well higher than the $2.78 drivers paid last year.

Stocks Open Higher in U.S.; Europe Up

BERLIN --The German government supports a far-reaching ban on short-selling in Europe, the finance ministry said Friday, after four European Union countries banned the short-selling of certain stocks.

The Europe-wide ban should be on naked short-selling of shares, sovereign debt and credit default swaps, the ministry told Dow Jones Newswires in an emailed statement.

"That's the only way of countering destructive speculation in a convincing way," the ministry said.

"The measures now announced by France, Italy, Spain and Belgium find our full support," the statement added.

The governments of those countries late Thursday imposed bans on the short-selling of certain financial stocks and derivatives linked to them amid extreme volatility on financial markets.

The U.K.'s Financial Services Authority refused to go along with the initiative, however, and the German regulator Bafin also declined to tighten its existing regime.

The strong start to trading on Wall Street could extend the market’s gains from Thursday. While Asian stocks had a lackluster trading day, the Euro Stoxx 50 index of euro zone blue chips was up 4 percent in afternoon trading and the FTSE 100 index in London was up 2.6 percent. The CAC 40 index in Paris was up 3.7 percent, and the DAX in Frankfurt 3.4 percent.

In early trading, the Standard & Poor’s 500-stock index rose 1.2 percent. The Dow Jones industrial average was up 1.2 percent and the Nasdaq was up 0.7 percent.

The American stock market this week has been wildly volatile, with alternating days of collapsing and then sharply rising prices. The mood has swung between speculation about a renewed financial crisis and confidence that banks are healthy and corporate profits strong.

So far this week, the S.&P. 500 is down by 2.2 percent.

Bans on so-called short-selling of bank shares took effect in France, Italy, Spain and Belgium Friday, giving some relief to pressured bank shares. France, Italy and Spain said the bans would be in effect for 15 days, while Belgium did not set an expiration date. The Stoxx Europe 600 Banks index was up 2.8 percent in afternoon trading.

Germany said it supported the move by its neighbors and would push for other countries to adopt its own ban on so-called naked short-selling, which involves selling securities without having the underlying assets, in the hope of buying them back at a lower price.

“We are advocating a wide-reaching ban on naked short-selling of stocks, sovereign bonds, and credit default swaps,” a German Finance Ministry spokesman, Martin Kotthaus, told Reuters in Berlin. “Only this way can destructive speculation be countered convincingly.”

Despite figures released Friday showing that economic growth had stalled in France in the second quarter, some analysts said growing confidence in France’s underlying strength and ability to honor its debt also lifted stocks.

“The market probably starts to believe that France won’t be downgraded,” Dirk Hoffmann-Becking, an analyst at Sanford C. Bernstein in London, said.

The three major credit rating agencies each issued statements on Wednesday saying France’s credit rating was not at risk. Concern about such a downgrade had gripped markets ever since Standard & Poor’s downgraded its rating for United States debt for the first time last week.

But Mr. Hoffmann-Becking added that there was “still a huge amount of nervousness, and issuing a short selling ban is never a sign of confidence.”

“Ultimately it boils down to fundamentals and the question whether there is going to be a significant political response to the ongoing stress,” he said.

The Italian government was to meet Friday night to approve emergency measures designed to balance the budget by 2013 — one year earlier than planned. The action comes after Italy’s borrowing costs spiked earlier this month because of increasing nervousness over the country’s ability to manage its huge debt burden.

Uncertainty about what European leaders would or could do next to prevent the sovereign debt crisis from spreading was spooking the markets as well.

French President Nicolas Sarkozy and German Chancellor Angela Merkel are set to meet in Paris on Tuesday to discuss ways to strengthen political and economic governance among the countries that share the euro as a common currency.

With investors still on tenterhooks after days of massive volatility in markets around the world, the Nikkei 225 in Japan ended 0.2 percent lower, while Taiwan and South Korea both retreated more than 1 percent. The Straits Times in Singapore also climbed 1.3 percent midafternoon, and the main market gauge in Hong Kong added 0.8 percent, and in mainland China, the Shanghai composite index climbed 0.4 percent. Australia ended up 0.8 percent.

Those gains were muted compared to the late surge in Europe on Thursday, which carried through to Wall Street. After another day of wild swings, the Dow Jones industrial average ended nearly 4 percent higher, and the Standard & Poor’s 500 gained 4.6 percent.

Traders and strategists attributed the gains there to bargain hunting and an easing — at least for now — of concerns about the financial health of some of Europe’s banks and what their problems might mean for banks in the United States.

But overall, analysts said, investors remained on edge for any disturbing news on the European debt front, and for any signs that U.S. economic growth is languishing or worsening.

“Given the damage to sentiment in the past few weeks, it is hard to see markets rebounding healthily straight away. The risk that the market turmoil tips the world into a new recession and causes earnings to turn down sharply has risen,” Garry Evans, the global head of equity strategy at HSBC in Hong Kong, wrote in a note Friday. “It will be a few months before the smoke clears and it becomes plain how much damage has been done.

Germany has already banned naked short-selling of certain stocks and sovereign debt of euro-zone countries, as well as of euro-zone sovereign debt credit default swaps since 2010, the German finance ministry said.

The German federal banking association BdB, the Bundesverband Deutscher Banken, rejected a permanent ban on stock-market short-selling.