US stocks drop after 2Q GDP growth slows

Stocks fell and interest rates rose in the Treasury market Friday after the government said the economy grew at a slower pace than expected during the second quarter.

The Commerce Department said the gross domestic product, the broadest measure of the economy, grew at an annual pace of 2.4 percent from April to June. That"s less than the 2.5 percent economists polled by Thomson Reuters had forecast.

The Dow Jones industrial average tumbled 106 points in early morning trading.

The report confirmed investors" belief that the recovery is weakening as unemployment remains high and government stimulus programs end. Consumers cut back on their spending because of job worries and companies spent less to rebuild inventories.

The figure was especially discouraging after the government revised first-quarter growth to a pace of 3.7 percent from 2.7 percent.

The Dow Jones industrial average entered the last day of July up 7.1 percent for the month. The market"s big gains have come on strong corporate earnings and profit forecasts that conflict with economic reports that point to a slowdown.

In the past few days, however, investors have been more focused on economic reports. Disappointing numbers on housing and unemployment and cautious words from the Federal Reserve have sent stocks lower.

In early morning trading, the Dow Jones industrial average fell 105.96, or 1 percent, to 10,361.20. The Standard & Poor"s 500 index dropped 11.88, or 1.1 percent, to 1,089.65, while the Nasdaq composite index fell 28.50, or 1.3 percent, to 2,223.19.

The disappointing GDP report sent investors into the safety of the Treasury market, which drove interest rates lower. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.93 percent from 2.99 percent late Thursday. Its yield is used to set rates on mortgages and other consumer loans.

European markets fell after reports that Spain"s credit rating is likely to be cut by Moody"s Investors Service. The potential downgrade comes as the country"s unemployment rate jumped to a 13-year high of 20.09 percent and the government continues to grapple with rising debt problems.

Losses also accelerated in Europe after the weak GDP report.

Spain"s IBEX 35 fell 2 percent. Britain"s FTSE 100 fell 0.8 percent, Germany"s DAX index dropped 0.8 percent, and France"s CAC-40 fell 0.8 percent. Japan"s Nikkei stock average fell 1.6 percent.

(Agencies)