NEW YORK ( TheStreet) -- U.S. markets climbed out of session lows by market close, but stayed in the red for the day. Investors remained wary of a European selloff triggered by deepening Portugal banking concerns.
Portugal's 10-year bond yield spiked to 3.97%, its highest point since April, after the nation's biggest bank Banco Espirito Santo and controlling shareholder Espirito Santo Financial Group commented on "ongoing material difficulties."
Moody's downgraded Espirito to Caa2 from B2, noting its rating was still on review for a further downgrade. The firm said the move reflects a "higher credit risk profile" and that concerns for its creditworthiness have been heightened by the bank's lack of transparency.
European stocks tumbled on the news and also weakened by a 2.3% decline in French manufacturing and a 1.2% drop in Italian industrial output, its biggest fall since late 2012.
The Bank of England decided Thursday to maintain interest rates at a record low of 0.5%.
"The market shrugged off the rising cost of financing Portugal's debt yesterday and we suspect it's playing catch up, as Alcoa (AA) and Fed minutes fade," said Peter Cardillo, chief market economist at Rockwell Global Capital. "This type of action suggests a summer trading range is being established," he added.
Weaker-than-expected earnings reports were not helping to lift domestic markets out of the doldrums. Family Dollar (FDO) posted a quarterly profit decline of 33% and missed earnings estimates by 4 cents at 85 cents a share. The results reflect economic challenges facing its core customer and an intensely competitive environment. Likewise, Potbelly (PBPB) shares dived 25.1% after the sandwich chain's warning that it expects weak sales for its fiscal second quarter.