Markets: Worst Week This Year For Many, Gold Glows

The debt debacle overshadows the outlook for markets.

If it's resolved, expect a sympathy rally that sees markets rally strongly in relief, but the rebound will peter out when investors realise that it's only a reprieve, not a solution for the most pressing problem, the lack of growth in the US economy.

The White House indicated President Barack Obama would consider signing a short-term extension of the debt ceiling if it would give lawmakers time to complete a longer-term deal.

Talks continued over the weekend and a big statement is due this morning, our time.

In the US, Friday saw the Dow rebound from being 156 points down to ending the day off 96.87 points, or 0.8%, to 12,143.24.

Talk about more talks and votes in Congress helped the recovery, but it couldn't help the markets which finished the worst week this year deeply in the red.

The Dow lost 4.2% which wiped out July's earlier gain to leave it 2.2% lower for July, its third straight monthly loss.

The S&P 500 Index eased 8.39 points, or 0.7%, to 1,292.28.

For the week, the index lost 3.9% - also its worst week for just over a year - and 2.2% for the month.

And the Nasdaq Composite Index lost 9.87 points, or 0.4%, to 2,756.38. It lost 3.6% for the week which also wiped out all the gains from strong results from the likes of Google and Apple to end off 0.6% for the month.

The Commerce Department said US gross domestic product expanded at a 1.3% rate in the second quarter, below the 1.6% forecast by economists, with first quarter growth slashed to just 0.4% from the earlier estimate of 1.9%.

And the Thomson Reuters/University of Michigan gauge of consumer sentiment fell in July to its lowest level since March 2009.

Yields on benchmark 10-year Treasury notes plunged 0.15% to 2.8%, one of the largest falls of the past year.

New York oil futures fell $US1.74 to end at $US95.7 a barrel, while December gold futures closed at a record $US1,631.20 an ounce.

In Australia, local shares look like opening higher, judging by the 19 point advance in the Share Price Index on Saturday morning.

But that will be shaky and if there's no deal on the US debt, then a fall could happen.

On Friday, the ASX/200 fell for a third day to end down 39.2 points, or 0.9%, to 4424.6, while the All Ordinaries index dropped 38.7 points, or 0.9%, to 4500.5.

The ASX200 lost about 3.9% for the week and for the month of July - its worst monthly return since May 2010.

The Australian dollar hovered at $US1.0993.

For the month, a series of poor results in the retail sector saw the consumer discretionary sub-index lead falls, dropping 7.5%, with department store operator David Jones losing about a quarter of its value after its surprise sales and profit warning.

BHP Billiton lost 61 cents to $41.42, and Rio Tinto dropped $1.20 to $80.00.

Among the banks, Westpac lost 23 cents to $20.42, Commonwealth dropped 17 cents to $49.27, National Australia Bank shed 18 cents to $24.00 and ANZ was 16 cents weaker at $20.83.

Macquarie Group added to its Thursday losses, down 42 cents to $27.57.

In Asia, Japan's Nikkei Stock Average ended the day 0.7% lower at 9,833.03 and South Korea's Kospi gave up 1.1% to 2,133.21, while Taiwan's Taiex lost 1.4% to 8,644.18.

Hong Kong's Hang Seng Index fell 0.6% to 22,440.25 and China's Shanghai Composite edged 0.3% lower to 2,701.73.

The MSCI Asia Pacific Index lost 1.6% last week.

After the Reserve Bank of India lifted interest rates half a per cent and shocked markets earlier in the week, India's Sensex index fell 2.8% for the week, while the S&P/CNX Nifty dropped 2.7%.

Besides the big loss in Australia, the Nikkei gave up 3% last week, while the Shanghai Composite shed 2.5% during the week.

South Korea's Kopsi lost 1.8% by Friday, with second quarter growth coming in at 0.8%, less than forecast.

Hong Kong's Hang Seng was flat For the month of July. The Sensex fell 3.4%, its worst monthly drop since January.

India's stockmarket benchmark is now down 11.3% year to date. The Nifty fell 2.9% in July, its worst performance since May.

Among other markets, Brazil stood out, with a 2.4% drop last week and 5.6% for July.

Rising inflation, a slowing economy and booming currency were the major factors, capped by the government's decision last week to implement a tax on foreign-exchange derivative contracts.

In Europe, the Stoxx Europe 600 index fell 0.7% to close at 265.25. The index ended July with a monthly fall of 2.5%.

European stocks fell moderately on Friday. Britain's FTSE 100 lost 1%, the DAX in Germany was off 0.4% and France's CAC 40 slid 0.9%.

In a widening of Europe's debt crisis, Moody's said it may cut Spain's credit rating.

Moody's said that while the country's sovereign rating was being placed under review, any downgrade would most likely be "limited to one notch."

Spain's Socialist government called national elections for November, four months ahead of normal.

With all the tension over the debt ceiling, it's no wonder gold futures ended at a record level in New York on Friday.

Helped by the poor GDP report and the fears about the debt ceiling talks stalling, investors pumped gold $US15 an ounce higher on Comex.

December delivery gold ended $US1631.20, the highest close so far.

Earlier the metal had traded as high as $US1,637.50 an ounce, an intraday record.

Gold gained 1.9% last week and a very solid 8.5% in July, having added $US128.40 an ounce since the end of June.

Gold had last settled at a record on Tuesday, when it ended at $US1,616.80 an ounce over the unresolved debt ceiling/spending cuts issue.

Silver followed gold higher on Friday but other metals declined.

Comex September silver added 31 cents, or 0.8%, to trade at $US40.11 an ounce.

Silver was flat on the week, but jumped 15% for the month.

September copper fell a cent Friday on Comex after gaining all week as a strike at BHP's Escondida mine led to concerns about supply.

Copper ended the week at $US4.48 a pound.

Copper rose 1.6% this week, and 4.7% for the month.

With unions reporting on Friday night that the strike could be over soon with negotiations moving closer to ending, copper prices could come under more selling pressure this week, especially if the monthly manufacturing reports in China, Europe and the US are weak.

Copper on Thursday settled at its highest in three and a half months because of the Escondida strike.

Unions rejected an offer from BHP on Friday, but said they were still close to a deal and had asked the company to lift its bonus offer.

Nymex crude-oil futures slipped nearly 2% on Friday on the news of the weak GDP figures and the debt ceiling concerns.

Crude for September delivery lost $US1.74, or 1.8%, to $US95.70 a barrel.

On the week, oil lost 4.2% and lost 0.3% on the month.