Mixed IMF report, falling oil weighs on stocks

NEW YORK — A mixed outlook on the economy from the International Monetary Fund and falling commodity prices are sending stocks lower.

Market indicators gave up early gains Wednesday, falling to levels not seen in more than two months, after the IMF downgraded its forecast for the global economy this year, adding to the market’s growing doubts that a recovery would materialize in 2009. The Dow Jones industrials fell about 50 points.

Another tumble in oil prices dragged energy shares lower and reflected concerns that demand for energy would remain weak as the economy struggles to emerge from a recession that began nearly two years ago.

Stocks briefly pulled off their lows in the early afternoon following a strong auction of 10-year Treasury notes. That helped allay one of the market’s recent worries, that the government would have trouble finding enough buyers for the massive amount of debt it’s issuing.

After sending stocks soaring this spring on the belief that the economy was turning around, investors have put their buying on hold since mid-June as several pieces of disappointing economic data eroded the case for a quick recovery.

“There’s nothing to get people to jump into the market,” said Kurt Karl, chief U.S. economist at Swiss Re. “Nothing to get them excited.”

The market has already digested the most recent batch of economic news, including worse than expected reports on employment and manufacturing, and is becoming anxious ahead of second-quarter earnings season and the forecasts from companies that are sure to be the next big test for stocks.

Alcoa Inc. becomes the first major company to report later Wednesday, and the market will also be watching retail sales figures coming out Thursday to see if slippage in consumer confidence translated into a weaker take at cash registers.

Several analysts say a recovery is indeed on its way — investors just need to be more realistic about its pace.

“At least for the first year of the expansion we’re likely to see quite anemic growth,” said Avery Shenfeld, chief economist at CIBC World Markets. “The message is to be patient. The broader rise in equities that we’ve seen since the spring will eventually prove to be warranted.”

In early afternoon trading, the Dow Jones industrials fell 45.27, or 0.6 percent, to 8,118.33, after earlier rising as much as 56 points. The Standard & Poor’s 500 index fell 8.26, or 0.9 percent, to 872.77 and the Nasdaq composite index fell 11.71, or 0.7 percent, to 1,734.46. Both the Dow and S&P 500 hit levels not seen since May 1.

The IMF said Wednesday it expects the world economy to shrink by 1.4 percent in 2009, slightly worse than its earlier estimate of 1.3 percent. But it boosted its estimate for global economic growth in 2010 to 2.5 percent, up from its April projection of 1.9 percent.

Meanwhile, oil prices fell for a sixth straight day, dropping $2.17 to $60.76 a barrel, tumbling sharply from an eight-month high of $73 in just one week. Investors are interpreting falling oil prices as a sign of economic weakness as industrial and manufacturing activity remains in a slump.

The falling price of oil has contributed to selling on world exchanges over the past week. On Tuesday, all the major indexes lost at least 2 percent, including the Dow, which fell 161 points.

Both the Dow and the S&P 500 have shed about 7 percent since their recent highs on June 12. Though the weak volume that has marked trading in recent weeks shows little conviction behind the selling, analysts say the market is at risk for a further pullback if it doesn’t soon get the good news it’s looking for.

“This is a wave of realization,” Karl said. “We were pretty excited there for awhile and things were just quite a bit ahead of the actual fundamentals of the economy.”

News from a summit of world leaders Wednesday reinforced the notion that the global economy is still shaky. According to a draft of the Group of Eight statement, the officials said they have seen signs of stabilization but that it is too early to begin rolling back massive stimulus efforts.

In other signs of investor unease, bond prices and the dollar both rose sharply, as did a measure of market volatility known as the VIX index.

Following the successful bond auction, the price of the benchmark 10-year Treasury note jumped about a point, pushing its yield down sharply to 3.31 percent from 3.46 percent late Tuesday. That marks the lowest level for the 10-year yield since May 20.

Treasury yields have softened in recent weeks after spiking in early June to an eight-month high of 4.01 percent on concerns over demand and the falling dollar. The recent retrenchment in long-term yields is good for consumers because yields are closely tied to interest rates on mortgages and other consumer loans.

The dollar mostly rose against other major currencies, while gold prices fell. The VIX index rose 1.03, or 3.3 percent, to 31.88.

About four stocks fell for every one that rose on the New York Stock Exchange, where volume came to relatively low 756.1 million shares, compared with 593.9 million shares the same time a day earlier.

The Russell 2000 index of smaller companies fell 8.54, or 1.8 percent, to 475.71.

Japan’s Nikkei stock average fell 2.4 percent. Britain’s FTSE 100 index fell 1.1 percent, Germany’s DAX lost 0.6 percent and France’s CAC-40 fell 1.3 percent.