Stocks Finish Mixed as Debt Worries Deepen

NEW YORK (TheStreet) -- Stocks failed to hold early gains Thursday as momentum from positive data on unemployment claims and pending-home sales was swept aside by debt deadline worries.

The Dow Jones Industrial Average was hit hardest, slumping 62 points, or 0.5%, to finish at 12,240. The S&P 500 ticked down 4 points, or 0.3%, to 1301, and the Nasdaq inched up a point to 2766.

While the jobs market remains a soft spot in the economic recovery, the latest data on weekly initial jobless claims offered a glimmer of hope. After weeks of holding above the 400,000 level, initial claims for the week ending July 23 ticked down to 398,000. That's down from 422,000 in the week prior. The drop was a surprise with Briefing.com projecting a pessimistic 440,000 in initial claims.

The latest update in the housing market also surprised investors, with pending home sales for June rising 2.4% from May, according to the National Association of Realtors. Economists had expected a 3.5% decline.

Investors put in "short term trading moves" on the positive economic data early in the day, said Andy Fitzpatrick, director of investments at Hinsdale Associates. However, the political gridlock in Washington seemed to weigh in more towards the close, especially after House Speaker John Boehner (R., Ohio) held an afternoon press conference to push his proposal.

The expectation is that even if Boehner's solution to the deficit problem survives a House vote later Thursday, the legislation will still be a non-starter in the Democratic-controlled Senate. That will send lawmakers back to the drawing board.

As Wall Street holds out for an eleventh-hour miracle, some economists warn that U.S. debt will face a downgrade even if lawmakers meet their deadline. Wall Street's so-called fear index, the VIX, which is based on options activity in the S&P 500, has been steadily ticked up the last six trading sessions.

Global investors have also kept a close eye on Washington's budget standoff. While the FTSE in London settled up 0.3%, the DAX in Frankfurt slipped 0.9%. Hong Kong's Hang Seng climbed 0.1%, and Japan's Nikkei lost 1.5%.

At the same time, investors aren't dumping money wholesale into safe havens such as gold yet. Gold has already appreciated significantly because of eurozone concerns. After reached a record $1628 high on Wednesday, futures for August delivery slipped $1.70 to $1,613 an ounce Thursday.

Yields on long-term Treasury bonds were holding steady. The benchmark 10-year Treasury rose 5/32, keeping yields below 3%. The dollar strengthened against a basket of currencies, with the dollar index up by 0.2%.

Oil prices were jumpy during the session as traders digested debt concerns along with a bearish inventory report. The September crude oil contract closed down $2 at $97 a barrel.

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