By  on July 26, 2011

The equity markets started off on a sour note Monday, with the DowJones Industrial Average dropping more than 140 points before a modestafternoon recovery, as Washington’s debate on whether to raise the debtceiling and avoid a U.S. default fed investor fears.

The Dowclosed down 0.7 percent, or 88.36 points, to 12,5923.80, while theS&P Retail Index also fell 0.7 percent, or 3.95 points, to 545.18.Anxious investors sought the safety of gold and pushed the preciousmetal up as much as $22.80 to an all-time high of $1,624.30 an ounce.

Sharesof retailer Francesca’s Holdings Corp., which shot up more than 20percent following the company’s initial public offering Friday, added2.4 percent to $28.31 in their second day of trading Monday.

However,decliners far outnumbered advancers in the retail sector, with some ofthe largest decreases coming from specialty stores. Limited Brands Inc.was off 4.3 percent to $38.45; Pacific Sunwear of California Inc. wasdown 4.1 percent to $2.79, and The Talbots Inc. finished 3.8 percentlower at $3.01.

Lawmakers have until Aug. 2 to raise the debtceiling or the U.S. could run out of money to pay its bills, a defaultthat could spark another financial crisis.

Given the severityof the debt crunch in Europe, where Greece is teetering and Italy isthought to be imperiled, investors have largely seen Washington’swrangling as politics as usual. But as the deadline for default nears —and thousands of government employees start to wonder about their nextpaycheck — more people are beginning to hash out the practical concerns.

Gary Wassner, co-chief executive officer of factoring firmHilldun Corp., said factories overseas are already starting to take atougher line when it comes to giving U.S. companies leeway on how theypay their bills.

“They’re already demanding funds up front,”Wassner said. “I don’t know if they’re going to extend them the kind ofcredit that they have over the last couple of years.”

Wassnersaid a default would undermine U.S. credibility and the country’scredit.

Economic forecasting group IHS Global Insight said lastweek that “worries over the intractable politics of deficit reductionand raising the federal debt ceiling have cast a pall over the economy.”Still, the group predicted that real gross domestic product growthwould increase from the “paltry” 1.9 percent annual rate seen in thefirst half to a 3 percent gain in the second half with help from exportsand pent-up demand for cars, housing and business equipment.

To access this article, click here to subscribe or to log in.

load comments
blog comments powered by Disqus