Slide continues for Dow Jones

US stocks continued a week-long slide today after a dismal report on economic growth added to the anxiety.

Major indexes erased some of their early losses after President Barack Obama said there were many paths to a compromise on raising the debt limit.

The Dow Jones industrial average fell 96.87 points, or 0.8%, to close at 12,143.24.

The combination of bad economic news and growing worries about a possible debt default was evident in nearly every measure of investor confidence:

The Dow Jones industrial average had a sixth straight day of losses, a string that has erased 581.17 points, all 10 industry groups in the S&P 500 stock index fell and gold rose nearly 1 % to 1,631 dollars an ounce.

The cost to protect against a US default within the next year reached a record high, as the cost to insure Treasurys for one year jumped 54% this week.

Longer-term government bond prices rose as traders saw them as less likely to be affected by short-term positioning in Washington. The yield on the 10-year Treasury bond fell to 2.79 %, its lowest level of the year. Bond prices move in the opposite direction of their yields.

The Standard and Poor’s 500 index lost 8.39 points, or 0.6 %, to 1,292.28. The Nasdaq composite fell 9.87, or 0.4 %, to 2,756.38

If Congress fails to act by Tuesday, the US may not be able to pay all its financial obligations. That includes interest payments on bonds and the salaries of federal employees. A default on US Treasury debt could wreak havoc on financial markets and the economy.

Many analysts continue to believe a deal to raise the country’s borrowing limit will be made before the August 2 deadline.

“It seems unlikely that Congress would choose financial Armageddon over some type of compromise,” said Joseph Tanious, a market strategist with J.P. Morgan Asset Management.

Some argue that the market’s recent downturn is overshadowing strong corporate earnings reports. They also say the market is ignoring other reasons to believe the economy will bounce back in the second half of the year.

“It’s a very confusing time, but once this cloud lifts, market participants are going to turn around and say, ’This isn’t so bad.’,” said John Canally, an economist with LPL Financial. “It’s definitely going to be a rocky couple of days.”

The government reported early today that economic growth slowed in the first half of the year to its weakest pace since the recession ended two years ago.

Some investors said that the economic report wasn’t as bad as it first appeared. Phil Orlando, chief strategist at Federated Investors, said that the report was a “rearview mirror view of an economy that was struggling with the impact of the earthquake in Japan and high commodity prices”.

Mr Orlando said he believes that rising corporate profits and a rebound in the auto industry will push stocks higher for the rest of the year.

Merck fell 2% even after the company reported strong earnings. Chevron dropped 1% despite better second-quarter earnings.