Dow edges lower on Caterpillar earnings miss

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A big earnings miss from Caterpillar Friday halted a stock rally that brought the Dow Jones industrial average close to its highest level of the year.

Caterpillar fell nearly 6 percent after the equipment maker earned less than analysts were expecting last quarter. The company, which is seen as a bellwether for the global economy because it sells equipment all over the world, said its results took a hit from the earthquake and tsunami disaster in Japan.

The weaker results from Caterpillar and a continuing deadlock over raising the U.S. borrowing limit capped the stock market’s gains and left the U.S. out of a broad rally in overseas markets. Stocks gained worldwide after European leaders reached a deal aimed at containing the region’s debt crisis.

The Dow Jones industrial average fell 41 points, or 0.3 percent, to 12,683 in afternoon trading. Even with the decline, the Dow is up 1.6 percent for the week and on pace for its third week of gains out of the last four.

The broader Standard & Poor’s 500 index gained 2, or 0.1 percent, to 1,346. Energy, technology and consumer discretionary companies were the only industries to rise, but were enough to push the broad index higher.

A strong earnings report from Advanced Micro Devices Inc. helped technology stocks gain broadly. The Nasdaq composite rose 26 points, or 0.9 percent, to 2,861.

AMD jumped nearly 19 percent after the chip maker said it expects more earnings gains in the third quarter. Flash memory card maker SanDisk Corp. rose 12 percent after its earnings rose sharply. And Microsoft Corp. gained 1.4 percent after beating analyst’s income estimates.

Traders kept close watch on negotiations in Washington over a deal to raise the nation’s debt ceiling ahead of an Aug. 2 deadline. The impasse has overshadowed an agreement in Europe Thursday to give Greece a second financial lifeline and broaden the powers of a regional bailout fund.

Republicans and Democrats continue to search for a deal to cut the government deficit that would combine cuts to social programs with revenue increases through an overhaul of the tax code.

Concerns that the debt ceiling won’t be raised before the August deadline are becoming more widespread, said Brian Gendreau, market strategist for Cetera Financial Group. “But the background is a growing economy and fairly strong earnings news.”

McDonald’s Corp. rose nearly 3 percent, the most of any stock in the Dow average, after the company’s income and revenue came in higher than analysts were expecting thanks to strong sales in Europe. CEO Jim Skinner said the company’s low prices helped bring in more customers as the economic recovery stumbled. Oil services company Schlumberger Ltd. rose 4 percent after its profits increased on a pickup in drilling in North America.

The Dow has gained 200 points this week. It opened Friday 86 points below its high for the year of 12,810.54, which came on April 29.

The S&P 500 and Nasdaq are both up more than 2 percent for the week.