Concerns about economy end rally

Associated Press

NEW YORK

Leave it to the economy to stop a debt-deal rally.

The Dow Jones industrial average started the day up nearly 140 points after President Barack Obama and congressional leaders said Sunday that a deal had been reached to raise the nation’s borrowing limit and avoid a possible debt default.

But another sign that the economy has slowed erased those early gains and took the Dow down as many as 145 points by midday.

The Dow ended the day with a loss of 10.75 points. It was the seventh day of declines for the blue-chip index.

Many investors remained concerned about the direction of the economy. A report from the Institute of Supply Management said that U.S. manufacturing barely grew last month. And on Friday, the government said that so far this year the economy has grown at its slowest pace since the recession ended in June 2009.

The manufacturing index was the first major economic report released in July. Analysts had expected it to show that the economy was expanding.

“This was a shock to the market,” said Phil Orlando, chief strategist at Federated Investors. “It clearly offset the emotional strength that we saw in the open from this tentative budget compromise.”

Federal Reserve Chairman Ben Bernanke and many economists have said that the U.S. economy would gain momentum in the second half of the year. But the manufacturing report, sluggish overall growth and concern about spending cuts included in the debt deal have cast doubt on that prediction.