NEW YORK — Leave it to the economy to stop a debt-deal rally.
The Dow Jones industrial average started the day up nearly 140 points after President Barack Obama and congressional leaders said Sunday that a deal had been reached to raise the nation’s borrowing limit and avoid a possible debt default.
But another sign that the economy has slowed erased those early gains and took the Dow down as many as 145 points by midday.
The Dow ended the day with a loss of 10.75 points. It was the seventh day of declines for the blue-chip index.
Many investors remained concerned about the direction of the economy. A report from the Institute of Supply Management said U.S. manufacturing barely grew last month. And Friday, the government said that so far this year the economy has grown at its slowest pace since the recession ended in June 2009.
The manufacturing index was the first major economic report released in July. Analysts had expected it to show that the economy was expanding.
“This was a shock to the market,” said Phil Orlando, chief strategist at Federated Investors. “It clearly offset the emotional strength that we saw in the open from this tentative budget compromise.”
Federal Reserve Chairman Ben Bernanke and many economists said the economy would gain momentum in the second half of the year. But the manufacturing report, sluggish overall growth and concern about spending cuts included in the debt deal have cast doubt on that prediction.
The Dow fell 0.1 percent, to 12,132.49. The broader Standard and Poor’s 500 lost 5.34, or 0.4 percent, to 1,286.94. The Nasdaq composite fell 11.77, or 0.4 percent, to 2,744.61.
The S&P traded below its 200-day moving average of 1,280. Many traders use moving averages as benchmarks for when to buy and sell. Orlando said the S&P could fall to 1,250 or lower during the next few days as investors begin to doubt the strength of the economy.
Many important details about spending cuts and possible tax increases will be decided by a new joint congressional committee, which means it could be months before there’s clarity on how the deficit will be reduced.
“The debt agreement was a step in the right direction but probably a small step,” said Bob Gelfond, the head of MQS Asset Management, a hedge fund based in New York.
