Slipping Dow rebounds to close above 10000 on unemployment report

After spending much of Friday below 10000, the market recovered lost ground amid positive news about unemployment. But the government-debt crisis in Greece is prompting investors to worry, again, about the health of the financial system.

By , Staff writer

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    Traders work on the floor of the New York Stock Exchange, Friday. U.S. stocks erased a midday drop to end slightly higher on Friday, closing out a volatile week punctuated by mixed signals from the labor market data and growing anxiety over fiscal problems in Europe.
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Investors capped a bad week by sending the stock market for a bumpy ride again Friday, amid new signs of global financial stress.

Worries about the government-debt crisis in Greece, and its potential ripple effects, sent share prices down for much of the day. But by the end of the day, the Dow Jones Industrial Average closed up slightly on positive news that the US unemployment rate fell to 9.7 percent.

The market action on Friday reflects a broader tug-of-war within investor hearts and minds.

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The Dow spent much of the day below a psychologically important milestone of 10000.

Still, numerous signals seem to be flashing "buy" for stocks. Corporate profits are reviving. The job market, while not yet strong, is improving. And alternatives to stocks have their own risks, with bonds vulnerable to losses if interest rates rise and with cash earning negative returns against inflation.

However, investors have major doubts on at least two fronts. Their first question, fueled by the Greek crisis, is whether the financial crisis could flare up again, as investors take a hard look at both debt-strapped governments and at banking-indusry risks. A second and related question is whether the economy's recovery will be disappointingly weak.

The Standard & Poor's 500 index of US stocks is down about 8 percent over the past month. Overseas, a broad basket of non-US stocks is down even more – 14 percent.

"We think it is still too early to tell if the worst of the pullback [in stock prices] is over," investment strategists at S&P said in a Wednesday report. But they forecast 37 percent rise in corporate earnings this year, boding well for stocks looking forward.

Sovereign debt tops list of investors' worries

Although stocks are still far above the lows they hit last March, they have shown little momentum since November. In recent days, concerns about the sovereign debt of governments have topped the worry list for investors.

"This week's story is Greece, next week's could be Portugal and next month could be Spain and maybe even Italy," said David Buik, markets analyst at BGC Partners.

The sovereign-debt troubles for now are centered in Europe, putting pressure on the Continent to hold its currency union together. Greece has one of Europe's highest government debt loads, as a share of its gross domestic product. Its annual budget deficit alone is now 12.7 percent of GDP, far higher than the European Union limit of 3 percent. On Thursday, many Greek government workers walked off the job – a signal of how hard it may be to tame the debt problem without a currency devaluation or outside help from the International Monetary Fund or the European Union.

The US dollar has risen as the long-ascendent euro currency stumbled.

But the troubles of Greece have also revived broader concerns that the world's financial system remains fragile. The credit problems range from still-troubled real estate loans to governments where debts have soared because of recession-related spending or tax-revenue shortfalls.

The US fiscal position, for example, is not much different from Greece's debt load of 95 percent of GDP. America has a GDP of about $14.5 trillion, while its $12 trillion debt is forcing Congress to consider a boost to the "ceiling" of allowable borrowing.

The big question mark in the days ahead will be whether the fears surrounding sovereign debts can be contained. (Greece will be hot topic as finance ministers from the Group of Seven meet this weekend in icy Iqaluit, on Canada's Baffin Island.)

Concern, too, about tepid recovery

Beyond that, there's still the question about the pace of economic recovery. A drop in the prices of oil and gold this week in part reflects a cooler view of the economy, with less risk of inflation.

But Friday's US job report showed some positive trends. The unemployment rate fell, as did the number of Americans working part time because they couldn't find full-time work.

Some economists predict strong job gains to begin within a few months. Michael Darda of MKM Partners in Greenwich, Conn., expects healthy gains of 200,000 to 300,000 jobs per month.

Material from wire services was used in this report.

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