Stocks Falter on European Debt Crisis

NEW YORK (TheStreet) -- Stocks pared losses after European leaders failed to deliver a substantive eurozone stability plan, but finished Tuesday in the red.

The Dow Jones Industrial Average, which had sunk nearly 200 points at session lows, settled down 77 points, or 0.7%, at 11,406. The S&P 500 finished lower by 12 points, or 1%, at 1193, and the Nasdaq Composite was off 32 points, or 1.2%, at 2523.

Although market watchers had low expectations for Tuesday's meeting between French President Nicolas Sarkozy and German Chancellor Angela Merkel, eurobonds option , they were still disappointed when the leaders ruled out the eurobond as an option to resolve the debt crisis in Europe. Instead, Sarkozy and Merkel said that the eurozone should have a balanced budget rule and proposed a new tax on financial transactions. Stocks sunk to session lows after the announcement.

The euro traded 0.2% lower against the U.S. dollar, which gained 0.1% against a basket of currencies.

The FTSE in London added 0.1%, while the DAX in Frankfurt dropped 0.5%.

In Asia, Hong Kong's Hang Seng declined 0.2% while Japan's Nikkei added 0.2%.

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The U.S. market started the day on a low note following news that Germany's economy grew a meager 0.1% in the second quarter, well below expectations for an increase of 0.5% and short of the 1.3% growth in the prior quarter. Sluggishness in Germany took away from gross domestic product growth in the eurozone, which expanded by only 0.2% -- the worst performance since Europe emerged from recession in late 2009.

After the closing bell, PC marker Dell (DELL)tripped on a revenue miss. Shares of the company lost 5% when Dell reported $15.5 billion in revenue for the year-ago period, short of the $15.76 billion analysts had expected. Enterprise and small business sales have helped Dell shares climb 17% so far this year.

Tuesday morning, Fitch Ratings affirmed its AAA credit rating for the U.S. with a stable outlook roughly a week after Standard & Poor's downgraded the U.S.' government debt to AA+ with a negative outlook. Depending on how Congress' Joint Select Committee decides to address deficit reduction at the end of November, ratings could change.

"Equities are trying to claw back higher. Domestic economic data has done little to move things, while it was the disappointing German GDP that put a damper on the three-day rally this morning," said RealMoney contributor Timothy Collins in a recent blog post.

"Results there were well below expectations, with the blame going to sovereign debt concerns," he said, adding that "after three straight days of running higher, it looks like only momentum is there to support the market."

Signs that the impact from Japan's earthquake disaster was wearing off did little to help stocks. The latest numbers on U.S. industrial production got a boost from a jump in auto production. The Federal Reserve reported that industrial production soared 0.9% in July, about double the growth analysts had expected.

In other economic news, the Census Bureau said housing starts fell 1.5% in July in June, which was milder than the 3.3% decline that economists had been expecting.

A small rebound in import prices suggested that inflationary pressures remained under control. The Labor Department reported a 0.3% uptick in import prices in July when the market was expecting a continuing decrease from the month prior.

Consumer staples and health care stocks put in some of the strongest performance, although Home Depot(HD) and Wal-Mart(WMT) were the only components that traded in positive territory.