US stocks falter on uncertainty about Europe debt

NEW YORK (AP) ? Stocks bounced between small gains and losses Tuesday morning as investors weighed Europe’s precarious debt situation, a sobering growth outlook and the start of a key Federal Reserve meeting.

The International Monetary Fund offered a more pessimistic view about the U.S. economy than it had previously held. The IMF said it expects economic growth of only 1.5 percent this year and 1.8 percent in 2012. In June, it had forecast 2.5 percent and 2.7 percent growth in 2011 and 2012 respectively.

The forecast gave weight to some investors’ fears that the U.S. could be on the brink of another recession.

Those fears have been compounded by a shaky global economy. The IMF also lowered its outlook for the 17 countries that use the euro, because it fears Greece will default on its debt obligations.

In a Tuesday teleconference between Greek officials and international lenders, Greek Finance Minister Evangelos Venizelos will attempt to convince the European Commission, International Monetary Fund and European Central Bank, known collectively as the Troika, that it can make deep budget cuts. Greece must meet the Troika’s strict budget targets in order to qualify for a fresh installment of the rescue package it received in 2010.

With no clear resolution for Europe’s debt crisis in sight, stocks have been highly sensitive to any developments in Greece’s efforts to qualify for new emergency funds.

Greece is only one of several European countries that investors fear may be at risk of failing to pay their debts. On Monday night, the ratings agency Standard & Poor’s cut Italy’s credit rating by one notch, citing the country’s growing debt and weak growth outlook. Italy has the second-biggest debt burden among countries that use the euro, after Greece.

If Greece or Italy were to default on its debt, it could become difficult for other European countries with heavy debt to borrow money. That could infect the European banking system and have severe repercussions for U.S. banks, which have lent billions of dollars to European companies. The U.S. and European economies are so closely linked that a European banking crisis could lead to a global credit crisis similar to the one that hit global stocks in 2008.

Investors are looking to the Fed for signs that the U.S. can avoid a recession. The central bank begins a two-day policy meeting Tuesday that some investors hope will result in specific steps to stimulate the U.S. economy.

At 10 a.m. Eastern, the Dow Jones industrial average fell 13 points, or 0.1 percent, to 11,388. The Standard & Poor’s 500 index fell 1, or 0.1 percent, to 1,202. The Nasdaq composite fell 3, or 0.1 percent, to 2,609.

The government said before the market opened Tuesday that builders began work on 5 percent fewer new homes in August than they did in July, in part because of delays caused by Hurricane Irene. The seasonally-adjusted 571,000 homes was lower than analysts expected and less than half the rate economists say represent a healthy housing market.

U.S. residential real estate has failed to rebound from the housing market decline that began in 2006 and helped trigger the global financial crisis.

ConAgra Foods Inc. fell 1.8 percent after the food maker said higher costs for consumer foods pushed its quarterly profit down 42 percent, below the expectations of Wall Street analysts.

Technology company Oracle Corp. reports its quarterly earnings after the closing bell. Investors are looking for signs that the company has had success in its server computer business.

Overseas markets held onto small gains in the hope that Greece would make progress in its bailout discussions. In afternoon trading, Frances’s CAC-40 rose 0.4 percent while Germany’s DAX rose 1.6 percent and the FTSE 100 index of leading British shares rose 0.8 percent.