Stock market tumbles again despite avoidance of U.S. default

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The United States isn’t defaulting, but the stock market is tumbling anyway.

The Dow Jones industrial average slumped more than 265 points Tuesday as mounting concerns about the fragility of the U.S. economy weighed heavily on Wall Street. It was the Dow’s eighth straight daily loss, its worst string since the depths of the global financial crisis in 2008.

Though relieved at Washington’s ability to forge an eleventh-hour debt-ceiling plan that averted a feared default, investors are spooked by the notion that the government cutbacks called for in the debt plan could further weaken an already torpid economy.

“Investors are looking past the budget situation and realizing this is an austerity plan,’ said Jack Ablin, chief investment officer of Harris Private Bank in Chicago. ‘We have an economy that’s struggling to stay afloat and we don’t have the ammunition to keep prodding it forward.”

The Dow skidded 265.87 points, or 2.2%, to 11,866.62, its worst loss in two months.

Investors scrambled into gold and U.S. Treasury bonds -- perceived havens -- as chatter on Wall Street turned to whether the economy might be headed back into recession.

The selling was driven by a government report that showed consumer spending suffering its worst decline in June since September 2009. Consumer spending fell 0.2%, compared with the 0.1% increase that economists expected.

Combined with a related rise in personal savings, the economic news indicated that the American public –- bombarded by ubiquitous warnings about the debt ceiling and reeling from chronic unemployment -– is further pulling in its horns.

Foreign stock markets sold off heavily, with the Spanish and German markets sinking more than 2%.

Treasury bonds continued their startling three-day rally. The yield on the benchmark 10-year Treasury note plunged to a nine-month low of 2.61% from 2.75% on Monday.

The yield on the 30-year Treasury bond skidded below 4%, falling to 3.90% from 4.08%. It was at 4.28% a week ago.

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-- Walter Hamilton