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Discouraging manufacturing data end brief market rally

August 1, 2011 | 12:03 pm

Exchange flag  stan honda getty The stock market's optimism about the debt deal reached in Washington last night proved short lived after disappointing data about American manufacturing rekindled fears of an economic slowdown. 

At midday the Dow Jones industrial average was down 73.45 points, or 0.6%, to 12,069.79.

The debt deal reached by President Obama and congressional leaders was expected to end the pessimism that has gripped the markets recently and led to six straight days of declines.

Markets in Asia rallied strongly overnight, and European stocks were initially higher as well. In early trading the Dow was up as much as 140 points.

But at 10 a.m. the markets reversed course when the Institute for Supply Management announced that its widely watched index of factory activity fell to 50.9, down from 55.3 a month ago. Manufacturing has been a central part of the recent economic recovery, and the slowdown in manufacturing -- almost to the point of contraction -- is seen as a worrying sign that U.S. economic activity is slowing down.

Other reports from around the world similarly indicated that global growth is slowing.

"With the debt ceiling drama seemingly drawing to a close, people are turning their attention back to the economic news," Paul Dales, an economist with Capital Economics, wrote to clients. "No one will like what they see."

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-- Nathaniel Popper

Photo credit: Getty Images/Stan Honda.

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