Stocks Settle After Rally

Stocks in the United States eased back on Friday from their biggest monthly rally in decades, ending relatively flat as the euphoria over Europe’s plan to address its sovereign debt crisis evaporated.

For the week, the three main indexes on Wall Street closed more than 3 percent higher, however, lifted mostly by the surge on Thursday that followed the announcement of the latest European rescue plan. The broader market in the United States, as measured by the Standard Poor’s 500 stock index, moved back into positive territory for the year.

But on Friday, some of the lustre started to wear off as analysts focused on lingering doubts about whether the European plan would restore growth or bring long-term solutions to the sovereign debt problems in the countries that share the euro.

“The enthusiasm is fading,” Guy LeBas, a strategist at Janney Montgomery Scott, said in a market commentary.

The ratings agency Fitch said that progress needed to be demonstrated in several areas: achieving a broad-based economic recovery in the euro zone, reducing government budget deficits, and stabilizing and then reducing government debt ratios. Otherwise, it added, financial market volatility and downward pressure on sovereign ratings would continue.

At 4 p.m. on Wall Street, the Dow Jones industrial average was up 0.18 percent, and the S.P. was up 0.04 percent. The Nasdaq was down 0.05 percent.

The Euro Stoxx 50 index of euro zone blue chips closed down 0.6 percent, while markets in Britain and Paris were also slightly lower. Germany’s DAX was up 0.13 percent.

While some trading this week in the United States was inspired by corporate earnings, reports of mergers and economic data, the financial markets were mostly focused on the prospects for some kind of agreement on a way to resolve Europe’s debt problems.

Those hopes helped stocks to rise on Monday, but on Tuesday they sank after another jolt from the European Union: the abrupt cancellation of a meeting of finance ministers that was meant to precede the summit meeting that eventually resulted in the final plan.

Stocks rose again on Wednesday and then powered higher on Thursday around the world following the marathon summit meeting in Brussels.

“There is not enough detail around what is going on in Europe and until you get more clarification, you will probably get some days where you will see swings like this,” said Laura LaRosa, the director of fixed income at the investment and wealth management firm Glenmede in Philadelphia.

Still, the S.P. 500 was up 13.58 percent so far this month, its highest monthly gain since October 1974, when it rose 16.3 percent in the month.

Ross Junge, the chief investment officer for fixed income, at Aviva Investors North America, said the combination of modestly improving economic data recently for the United States, and lower euro zone risks contributed to a “modestly positive” outlook for the credit markets.

“The key impacts from the announcement are investors’ increased confidence that the threat of a near-term systemic financial crisis will be avoided and the potential spillover risks to the U.S. economy and financial institutions should be reduced,” Mr. Junge said in a market commentary. “However, there will likely be additional bumps along the way and therefore we believe the markets will remain volatile.”

Ms. LaRosa predicted the price on the benchmark bond would rise slightly, as the market remained unsteady.

The United States 10-year Treasury bond yield was 2.31 percent, down from 2.39 percent on Thursday.Asian stocks closed higher on Friday.

Article source: http://feeds.nytimes.com/click.phdo?i=561073eaaf05afa275a0bc44f3a48bcd