U.S. markets close down slightly after brave start

U.S.markets rose from the opening Monday but quickly fell after the release of a negative manufacturing report.

The earlyoptimism followed the news that U.S. legislators had agreed Sundayto a last-minute deal to raise thegovernment's debt limit, preventing the world's largest economy from defaulting on its financial obligations.

But that was quickly replaced by concern about the U.S. economy's strength aftertheInstitute of Supply Managementreported its manufacturing index fellto 50.9 in July, just above the 50-point figure that shows manufacturing is growing. Economists had been predicting55.

After gaining 139 points and falling 146 points, the Dow Jones industrial average closed down10.82 points or0.1per centat 12,132.49. The Nasdaq fell 0.43 per cent or 11.77 points to 2,744.61and the S&P 500 was down 0.41 per cent or 5.95 points to 1,286.94.

The Toronto stock market was closed for a holiday.

U.S. President Barack Obama said Republican and Democratic leaders had agreed on a deal tocut more than $2 trillion US of federal spending over 10 years and to allow thetreasury to resume borrowing, thusavoidingadefault.

Bothhouses in Congress have to vote on the deal, but the reaction of Asian markets, which had beentrading for hours when the U.S. markets opened, suggested confidence in the vote.

"There is always the potential for a stumble here, but market reaction seems confident it will pass," said David Jones, chief market strategist at IG Index.

European markets echoed the spike and drop of their American counterparts.The FTSE 100 index of leading British sharesclosed down 0.7 per cent after shootingup 1.25 per cent in earlier trading, whileGermany's DAXwas down2.9 per cent and the CAC-40 in France shed2.3 per cent.

Chinese shares were weak after HSBC's purchasing managers' index fell and showed manufacturing contracting. China's main index in Shanghai roseless than 0.1 per cent.

Japan's Nikkei 225 stock averageclosed up1.3 per cent,South Korea's Kospi gained 1.8 per cent andHong Kong's Hang Seng added one per cent.

Oil prices fell after an early gain,with the benchmark oil for September delivery falling81 cents US to$94.89 USa barrel on the New York Mercantile Exchange.

Investors have been concerned by theU.S. political brinkmanship, knocking down stock prices, anddriving up safer investments like bonds and gold,out of concern thatlegislators would fail to reach an agreement.

Gold, which had risen to new highs on the uncertainty,fell$9.20 to$1,619.10 USan ounce on Monday.