Stocks headed for best January since 1997

By Pallavi Gogoi, Associated PressUpdated 13m ago Comments

NEW YORK – The stock market lost ground Tuesday but still appeared headed for its best January finish in more than a decade. An unexpected drop in consumer confidence dragged stocks down after a strong first half-hour Tuesday.

The Dow Jones industrial average and the broader Standard & Poor's 500 index were trading down into the afternoon while the Nasdaq composite index turned slightly positive after lunchtime although it quickly turned negative again.

For the month, the S&P 500 is up 4.3%. That would be its best performance to start a year since a 6.1% gain in January 1997. Last year, the market added 2.3% in the first month.

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Investors had such low expectations for the economy after a tough 2011 that it was easy for reports in January to come in better than expected, said Jerry Harris, chief investment strategist at the brokerage Sterne Agee.

"I don't see anything really glamorous or tremendous about the economy or earnings," Harris said. "But I think they're very acceptable, and things are grinding along."

Stock trend

Dow Jones industrial average, five trading days The Dow closed at 12,217.56 at the end of last year, then started this year with a pop — a gain of 179.82 points on opening day. It was the kind of big swing investors became accustomed to in 2011.

Since then, it's been a quiet ascent: 19 days in a row, counting Tuesday, of moves of less than 100 points. The last time the Dow had such a placid stretch was a 34-day run that started Dec. 3, 2010.

On Tuesday, the Dow started the day up 66 points after encouraging signs from Europe that Greece might finally complete a deal to cut its crushing debt, a step toward securing a critical €130 billion bailout payment.

Greece is negotiating with investors who bought its government bonds. They are expected to swap their bonds for new ones with half the face value, plus a lower interest rate and longer term of maturity.

Investors are increasingly worried that Portugal may need a similar deal with its private creditors. European leaders insist the Greek reduction is a one-time event. Portugal's borrowing costs have risen to record highs.

Back home in the United States, investors have enjoyed a steady climb through January amid signs of an improving economy. Unemployment has fallen from a 10% peak in October 2009 to 8.5% last month.

The Dow lost its gains after the Conference Board reported that its consumer confidence index fell to 61.1 in January, down from 64.8 in December. Economists had expected 68.

There were also signs that the housing market continues to struggle. Home prices fell in November for a third straight month in in 19 of the 20 cities tracked by the S&P/Case-Shiller index. The biggest declines were in Atlanta, Chicago and Detroit.

Eight of the 10 major categories in the S&P 500 were lower for the day. Telecommunications stocks and financial stocks managed small gains.

Stocks rose in Europe on Tuesday on hopes the continent is making progress in its fight to contain the debt crisis, but they lost some of their shine after a run of soft U.S. economic data.

Sentiment in the first half of the day in Europe was buoyant after European leaders agreed the broad outlines of a deal to tie the countries that use the euro closer together and on hopes that Greece is close to a debt-reduction deal with private creditors.

Late Monday, following the agreement by a large majority of countries in the European Union to sign a new treaty designed to stop overspending, Greece's Prime Minister Lucas Papademos indicated that progress was being made.

Though Greece remains the epicenter of Europe's debt crisis, leaders are pushing ahead with other plans to tie economies together. Only Britain and the Czech Republic opted out of signing the new treaty, commonly known as the fiscal compact, which is meant to make it more difficult for countries to run up massive debts, like the ones now roiling the 17-nation eurozone.

The hope among participants is that the tighter rules will restore confidence in their joint currency and convince investors that all of them will get their debts under control. For now, investors appear to be giving European policymakers the benefit of the doubt, especially as there are hopes a second bailout of Greece will be agreed alongside a debt-reduction deal between the country and its private creditors, possibly as soon as this week.

In London, the FTSE 100 index of leading British shares was up 0.2% at 5,681.61 while Germany's DAX rose 0.2% to 6,458.91. The CAC-40 in France was 1% higher at 3,298,55.

The more skittish mood in markets was evident in the performance of the euro, which was down at $1.31, having earlier traded above $1.32. The euro often garners support when investors look to take on more risk.

Europe's debt woes remain the main worry in the markets. A growing fear is that Portugal may also need to get private creditors to reduce their debts, even though Europe's leaders say Greece's debt-reduction deal is a one-off. Portugal's borrowing costs have been rising consistently to record highs over recent days as the economy shows few signs of improving.

Vassili Serebriakov, an analyst at Wells Fargo Bank, noted "optimism remains fragile, however, given an apparent increase in Portuguese tensions, with Portugal's two- and ten-year government bond yields reaching new highs today."

Earlier in Asia, solid Japanese industrial data helped stocks rally.

Tokyo's Nikkei 225 rose 0.1% to 8,802.51 after data showed December industrial activity rose 4% over the previous month. Hong Kong's Hang Seng gained 1.1% to 20,390.49 and Seoul's Kospi was up 0.8% at 1,955.79.

China's benchmark Shanghai Composite Index was up 0.3% at 2,292.48 ahead of Wednesday's release of a key manufacturing index. Investors are hoping for a loosening of credit curbs if it shows activity is slowing amid lackluster global demand.

Oil prices tracked equities higher — benchmark oil for March delivery was up $9 cents at $98.87 per barrel in electronic trading on the New York Mercantile Exchange.

Stocks headed for best January since 1997