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Manufacturing in India and China improved in December, a sign the world

Stocks closed down more than 1% Wednesday, as investors continued to fret over how Europe could solve its debt troubles in 2012. Selling intensified ahead of the close.

On a light trading week, investors have few other economic or corporate indicators to mull before 2011 ends.

Still, traders and analysts said the low volumes led to more pronounced swings, and some of the moves are coming from year-end portfolio rebalancing rather than convictions over the trajectory of all stocks or a particular stock.

"I don’t know what to read into today," said Peter Boockvar, equity strategist at Miller Tabak + Co. "There’s nothing going on in the U.S. market. It’s a holiday week."

The S&P fell back into negative territory for the year.

The Dow Jones industrial average () closed down 140 points, or 1.1%. The S&P 500 () slid 16 points, or 1.3%. The Nasdaq () lost 35 points, or 1.3% .

Dragging down the technology sector Wednesday were RIMM, () Netflix () and Fossil (). The Nasdaq is down roughly 2% for 2011.

Despite Wednesday’s sell-off, the Dow remains up 5% for 2011.

Some traders still hope to close the year poised for a January bounce. To get there, some say 1260 would be the magic number for the S&P to clear on Friday.

"If we could clear 1,260 by the end of the week, we could see a strong rally in January," said Joe Bell, senior equity analyst at Schaeffer’s Investment Research.

If the S&P clears 1258 by year-end, it would mark the third straight year of gains. The index remains about 11% below where it closed at the end of 2007.

Still, after closing at 1250 Wednesday, stocks need to commence a substantial two-day rally to get there.

U.S. stocks have been buoyed recently by signs of improvement in the US economy, including declines in weekly claims for unemployment benefits and an uptick in new home construction.

But investors say the market remains vulnerable as the debt crisis in Europe continues to threaten the outlook for the global economy and financial markets easy to get unsecured personal loans.

One bright spot for Europe on Wednesday was an Italian auction of 3- and 24-month bonds that drew strong demand and yields half as high as the previous month’s auctions. The results helped lift European equities and banks.

Investors will be more closely watching Thursday’s auction of Italian 10-year bonds, which have seen yields continue to flirt with the 7% danger zone. That level is worrisome because it flashed the first warning signs for Ireland, Portugal and Greece, which all eventually needed bailouts.

U.S. stocks ended a listless session little changed Tuesday as investors weighed reports on consumer confidence and home prices.

World markets: Europe’s markets finished lower. Britain’s FTSE 100 () eased 0.1%, the DAX () in Germany slumped 2% and France’s CAC 40 () lost 1%

Economists a bit more optimistic

Asian markets ended mixed. The Shanghai Composite () rose 0.2%, the Hang Seng () in Hong Kong fell 0.6% and Japan’s Nikkei () lost 0.2%.

Currencies and commodities: Oil prices eased off the previous sessions spike, slipping $1.64 to $99.70 a barrel. On Tuesday, crude prices jumped 2% after Iran threatened to choke off the flow of oil passing through the Strait of Hormuz.

Gold futures for February delivery fell $31.40 to $1,564.10 an ounce.

The dollar fell against the British pound and the Japanese yen but edged higher against the euro.

Companies: Shares in the financial sector remained under pressure throughout the trading day.

Top stocks of 2011

Citigroup (, Fortune 500), Credit Suisse (), Wells Fargo (, Fortune 500), Morgan Stanley (, Fortune 500), Goldman Sachs (, Fortune 500) and Bank of America (, Fortune 500) closed down between 1% and 4%.

Bonds: The price on the benchmark 10-year U.S. Treasury moved up sharply, with the yield falling to 1.928% from 2.01% from late Tuesday.  

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Yemeni soldiers battled al-Qaida-linked militants Monday outside the southern city of Zinjibar, which remains partly under the control of the Islamists. Five soldiers and four fighters were killed, a military official said.

The intense fighting in northern and eastern Zinjibar included artillery and rocket shelling on militant hideouts, the official said, speaking on condition of anonymity in line with military regulations.

He said the military units were engaged in pitched battles with armed gangs deployed on the streets, and have advanced on areas controlled by the militants.

At least 60 people, including 23 soldiers, have been killed in the fighting since last week.

Islamic militants, including some with links to the al-Qaida branch in Yemen, seized control of Zinjibar and another town in April and May. They were taking advantage of the turmoil surrounding the popular uprising against President Ali Abdullah Saleh to expand their area of operations.

Al-Qaida in the Arabian Peninsula was behind several nearly successful attempts to attack U.S. targets, including the failed attempt to down a passenger jet bound for Detroit on Christmas Day 2009. Washington believes it is the most dangerous of several al-Qaida’s offshoots around the globe.

President Saleh has cooperated with the U.S. in fighting the group and used the threat of al-Qaida in arguing that he could not relinquish power in Yemen despite the protests calling for him to go since February payday loans.

The U.S. withdrew its support of Saleh in the summer, and the autocratic leader signed a deal last month to transfer power in exchange for immunity from prosecution over the deaths of protesters and corruption during his 33 years in power.

The deal has failed to quell the protests in Yemen, which have recently expanded to include labor strikes, calling for Saleh loyalists to be removed from office and for Saleh to be put on trial.

On Monday, Yemen’s military agreed to replace a commander accused of corruption, apparently settling a brief strike by 1,000 soldiers, said Anwar Abdullah, an officer in a military department that deals with public affairs and army morale. Abdullah said that the strikers demanded the ouster of department head Maj. Gen. Ali al-Shater for mismanagement, accusing him of running his own prison, in which some soldiers were jailed even for minor offenses. Some were kept in chains.

Abdullah said after the prime minister intervened in the dispute Monday, it was agreed that al-Shater would be replaced.

The soldiers said they would end their strike when the defense minister appoints a new commander.

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Four Yemeni soldiers and two al-Qaida-linked militants were killed in clashes in the country’s south, military and medical officials said Sunday.

The fighting took place overnight outside the city of Zinjibar, the capital of Abyan province that Islamic militants seized earlier this year, a military official said. A medical official said six soldiers were wounded in the fighting.

Both officials spoke on condition of anonymity because they are not authorized to talk to the media.

Al-Qaida-linked militants have overrun swaths of territory in Abyan, taking advantage of a security vacuum that has developed as a result of Yemen’s ongoing political unrest amid nine months of massive protests demanding the ouster of President Ali Abdullah Saleh.

Fighting with the militants has continued as Yemen tries to emerge from its crisis. Saleh is due to step down by the end of the month in return for immunity from prosecution under a deal he signed last month. Under the U.S.- and Saudi-backed deal, a national unity government has already been formed, bringing in opposition parties.

Vice President Abed Rabbo Mansour Hadi has also formed a military committee joining both pro-regime forces and military units that defected to the opposition. On Saturday, the committee had succeeded in removing fighters, weapons and equipment of both sides from two main streets of the capital, Sanaa. But armed pockets of the rival forces could still be seen in side streets nearby.

The U.N. secretary-general’s envoy to Yemen, Jamal bin Omar, told reporters before he left Yemen Saturday that the military committee should end its work next Saturday in separating the rival sides, which at times engaged in heavy battles in the capital.

Gen. Ali Mohsen al-Ahmar, the commander of the First Armored Division who defected and joined the protesters in March, expressed his backing for the military committee after meeting Sunday with ambassadors supervising enforcement of the deal.

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Shoppers spent more with Discover cards as the holiday shopping season began, helping lift the credit card company’s fiscal fourth quarter profit 46 percent.

Discover Financial Services said Thursday that sales volume on its namesake cards rose 8 percent to $25.03 billion in the quarter. The total number of transactions Discover’s networks processed rose 5 percent.

At the same time, customer payment habits improved, and rates of late payments and defaults fell. That enabled the company to release some of its reserves set aside to cover unpaid balances, which also helped improve results.

Reflecting a broader trend across the credit card industry, the Riverwoods, Ill.-based company said the number of customers paying off their card balances each month increased.

Keefe, Bruyette and Woods analyst Sanjay Sakhrani noted that economic shakeout of the last few years has left credit cards in the hands of more affluent consumers who are better able to pay their bills in full each month, while those with lower credit scores and presumably less ability to pay are now less likely to use credit.

For the three months ended Nov. 30, Discover posted net income available to common shareholders of $508 million, or 95 cents per share, compared with $347 million, or 64 cents per share in the year-ago period.

The number of outstanding shares dropped 3 percent, which has the effect of boosting per-share results.

Revenue rose 13 percent to $1.81 billion from $1.6 billion last year.

Analysts, on average, were expecting earnings of 89 cents per share on $1.81 billion in revenue, according to a survey by FactSet.

Growth in the company’s private student loan and direct banking businesses provided added boosts during the quarter. During the period, Discover purchased an additional $2.4 billion in student loans.

Analyst Chris Brendler of Stifel Nicolaus said called the results “impressive,” and pointed to the growth in student loans and also private loans made by Discover Bank as positive. “It was a good quarter,” he said.

Discover said the results enabled it to raise its dividend by 67 percent to 10 cents from 6 cents. The dividend is payable Jan. 19 to shareholders of record as of Dec. 29.

In morning trading, Discover shares slipped 22 cents, to $23.60. The stock has traded between $17.86 and $27.92 in the past 52 weeks, and closed Wednesday up about 30 percent since the start of the year.

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Stock indexes gave back some of their gains Monday and the euro turned lower against the dollar following a report that Germany and five other major European nations could risk having their credit ratings downgraded.

The Dow Jones industrial average jumped as much as 167 points Monday but gave up more than half of that gain in the afternoon. The Financial Times reported that Standard & Poor’s might put the six nations on “creditwatch negative,” which means there is a 50-50 chance that one might be downgraded in the coming months.

The Dow and S&P 500 rose in early trading on hopeful signs that Europe was making progress toward preventing a breakup of its 17-nation currency union. Yields on Italian government bonds receded sharply after the new government of Mario Monti introduced sweeping austerity measures over the weekend.

Also, the leaders of France and Germany called for a new European treaty to prevent nations from running up big debts like the ones that pushed Greece and other weak countries to the brink of default.

“There’s pent-up demand, and people will use any excuse to get back in, thinking there’s been too much pessimism,” Gendreau said. Despite strong signals about the U.S. economy, the market has been weighed down by negative headlines about the U.S. budget impasse, credit-rating downgrades of the U.S. and other nations, and Europe’s spreading crisis, Gendreau said.

The Dow was up 70 points, or 0.6 percent, at 12,089 at 2:30 p.m. Eastern. The Standard & Poor’s 500 index rose 12, or 1 percent, to 1,256. The Nasdaq composite index rose 28, or 1.1 percent, to 2,655.

The gains were broad. All 10 industry groups in the S&P 500 rose. Financials stocks were among the biggest winners. Investors have feared that U.S. banks might be dragged down by their close connections to the unstable European financial system.

JPMorgan Chase & Co. jumped 3.5 percent, the most in the Dow. Bank of America was the second-biggest gainer of the Dow 30, rising 3.2 percent. Citigroup Inc. rose 5.7 percent, Morgan Stanley 6.1 percent.

Investors are hoping that a summit of European leaders on Thursday and Friday will produce concrete measures to prevent a messy breakup of the euro currency, which is shared by 17 nations. Markets have been jittery because of fears that the euro might disintegrate, causing a sharp recession in Europe that would spread through the world economy.

While the statements from French President Nicolas Sarkozy and German Chancellor Angela Merkel were far from a long-term solution, investors are eager to buy on any hint of good news because they have been earning meager returns from relatively low-risk investments such as Treasurys and CDs, said Brian Gendreau, investment strategist with Cetera Financial Group instant payday loans.

Italian bond yields dropped to their lowest level in a month, a day after the nation’s new government introduced austerity measures. That suggests traders believe that Italy is far less likely to default. The main Italian stock index jumped 2.9 percent.

Italy’s borrowing costs pulled back from a level that might have forced the nation to default. Analysts say bailing out Italy would be too costly and would hurt the credit standing of German and France, which have the strongest economies in the euro group.

The yield on the 10-year Italian bond plunged half a percentage point to 5.93 percent. It rose above 7 percent last month, a level at which other nations were forced to take bailouts. By comparison, bond yields in Germany, Europe’s largest and most stable economy, are roughly 2 percent.

Monday’s strong gains follow the best week in more than two years for U.S. stock indexes. The S&P 500 rose 7.4 percent last week, the most since March 2009. The Dow jumped 7 percent, the most since July 2009.

Markets are hopeful that, given the gravity of the situation afflicting the euro zone, the German and French leaders will come up with a common proposal for tighter integration on budget matters. Analysts say that such a plan could lead to further emergency aid from the European Central Bank, possibly through the International Monetary Fund.

In corporate news:

_ Gannett Co. leapt 11.4 percent after the media company was upgraded to “buy” from “neutral” by analysts at Lazard Capital Markets.

_ Incyte Corp. fell 2.7 percent after a Citigroup analyst downgraded the drug maker to “neutral” from “buy,” saying its new blood-disease drug Jakafi might not work as a long-term treatment.

_ SuccessFactors Inc. soared more than 50 percent after the company agreed to be sold to German software company SAP for $3.4 billion. SuccessFactors makes software specializing in human resources tasks. The deal is part of SAP’s plan to compete with software rival Oracle Corp.

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An early rally fizzled on the stock market Friday but still left the Standard & Poor’s 500 index up 7.4 percent for the week, its biggest gain since March 2009.

A surprise drop in the U.S. unemployment rate sent stocks higher in early trading, but the gains faded during the afternoon.

The Dow Jones industrial average dropped 0.61 of a point to close at 12,019.42. The Dow ended the week up 7 percent, the largest weekly gain since July 2009.

Bank stocks rose sharply, continuing a weeklong rally. JPMorgan Chase & Co. jumped 6.1 percent, the most among the 30 stocks in the Dow average. Morgan Stanley leapt 6.9 percent, the second-biggest gain of any stock in the S&P 500 index.

European stock indexes and the euro rose after German Chancellor Angela Merkel made a speech pushing for tighter rules on government spending. Merkel said the 17 countries that use the euro must quickly restore market confidence by making financial controls stricter.

Bond yields for Spain and Italy fell, a sign that investors are becoming more confident in the ability of those countries to pay their debt. France’s CAC-40 and Britain’s FT-SE each rose 1.1 percent.

Markets could be in for more volatility next week as European leaders prepare for a summit to propose new measures for containing the crisis.

The Labor Department reported before the market opened that the unemployment rate fell to 8.6 percent last month, the lowest level in 2 1/2 years. Economists had expected the rate to stay at 9 percent. But a key reason the unemployment rate fell so much was that more than 300,000 people gave up looking for work and were no longer counted as unemployed.

The Nasdaq composite index inched up 0.73 to 2,626.93. The Standard & Poor’s 500 index fell 0.31 of a point to 1,244.28. The S&P surged 7.4 percent over the week, the most since March 2009.

Decisive steps by world leaders to right Europe’s teetering economy sent stocks soaring on Wednesday. The Dow jumped 490 points, its biggest gain since March 2009 and its seventh-largest one-day point gain in history. The weekly point gain of 787 in the Dow was the second-biggest in its history, following a 946-point gain in October 2008.

“This market has been gripped with fear for a long time,” said Peter Cardillo, chief market economist at Rockwell Global Capital. “And I think some of these fear factors are beginning to dissipate.”

This week’s strong stock performance is partially a reflection of the market’s increased volatility since August, when concerns that Europe’s debt was spinning out of control made dramatic stock price swings the norm. On Monday the S&P 500 broke a 7-day slide that had taken the index down 7.9 percent.

The improvements in the U.S. job market are “another illustration that the US economy is, for now at least, shrugging off the global economic downturn and fears about the collapse of the euro-zone,” Capital Economics Chief U.S. Economist Paul Ashworth said in a note to clients.

Merkel and French President Nicolas Sarkozy will meet Monday to discuss changes to European Union treaties. The talks will culminate in a Dec. 9 summit of EU leaders, where the proposals are expected to be debated and detailed. Analysts say stricter controls on spending could encourage the European Central Bank to offer more short-term help for governments struggling with their debts.

If the European Central Bank takes a larger role in buying government debt, “it will certainly be a relief to markets,” Cardillo said, “and maybe even mean Europe avoids falling into a deep recession. Not that it’s going to cure all the problems of Europe.”

In corporate news:

_ Western Digital Corp. soared 7.5 percent, the most in the S&P. The data storage provider raised its revenue estimate for the current quarter and said that recovery efforts at its facility in Thailand following massive flooding there were proceeding faster than had been expected.

_ Big Lots Inc. slumped 8.7 percent, after the retailer reported a 76 percent plunge in income because of lower margins and a loss related to a newly acquired Canadian business. The company buys overstocked items including food and housewares and sells them at a discount.

_ H&R Block Inc. fell 6.4 percent. The country’s largest tax-preparation company reported a wider quarterly loss late Thursday. H&R Block also said there was a jump in claims tied to bad loans made by its former subprime mortgage unit.

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Ryerson University plans to make a major announcement Tuesday about its fundraising efforts for the Maple Leaf Gardens, leading to speculation the school may be about to reveal the title sponsor for the venue.

The school, which is a part-owner of the iconic structure, set a goal of raising $60 million to install badly needed student athletic facilities in part of the former hockey arena.

The $60 million is to be raised in equal portions by a federal government infrastructure grant, a special levy on Ryerson students, and corporate donations from such firm as Gardens

Yemeni President Ali Abdullah Saleh was in Saudi Arabia on Wednesday to sign a U.S.-backed power transfer deal mediated by Gulf Arab states to resolve the impoverished country’s crisis, Yemen’s state television reported.

Saleh has repeatedly promised to sign the Gulf-brokered agreement, only to change his mind every time. Under the deal, Saleh would step down and transfer power to the vice president in exchange for immunity from prosecution.

The TV said Saleh arrived in the Saudi capital Riyadh on Wednesday morning but did not say when the deal would be signed. It said that along with Gulf Arab representatives who sponsored the agreement, European and American envoys would also attend the signing.

Saleh has clung to power despite an 8-month-old uprising, mass protests calling for his ouster and a June assassination attempt that left him badly wounded and forced him to travel to Saudi Arabia for more than three months of hospital treatment.

But things appeared to be shifting on Tuesday, when the U.N. secretary-general’s envoy to Yemen, Jamal bin Omar, said all parties had agreed on a plan that would have Saleh step down.

“All parties agreed today on the Gulf initiative and the implementation of its mechanism,” bin Omar said after meetings with Yemen’s vice president, Abed Rabbo Mansour Hadi, in Sanaa.

Security in Yemen has unraveled amid the uprising against Saleh’s 30-year reign. The situation is particularly bad in the south, where al-Qaida militants _ from what is perhaps the world’s most active branch of the terror network _ have taken control of entire towns, using the turmoil to strengthen their position.

The unarmed protesters have held their ground with remarkable resilience, flocking to the streets of Sanaa and other Yemeni cities and towns to demand reforms from the autocratic government and braving a violent crackdown by government forces that has killed hundreds.

But their uprising, inspired by other Arab revolts in the region that saw longtime rulers of Egypt and Tunisa go, has at times been hijacked by Yemen’s two traditional powers _ the tribes and the military _ further deepening the country’s turmoil.

Breakaway military units and tribal fighters have been battling in Sanaa with troops loyal to Saleh, in fighting that has escalated in recent months.

An impoverished nation of some 25 million people, Yemen is of strategic value to the United States and its Gulf Arab allies, particularly Saudi Arabia. It sits close to the major Gulf oilfields and overlooks key shipping lanes in the Red and Arabian seas.

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Pope Benedict XVI has had his first meeting with Italy’s new leader on the tarmac of Rome’s airport just before taking off for a trip to Africa.

Premier Mario Monti greeted the pope Friday morning as Benedict descended from the helicopter that brought him from the Vatican to Rome’s Leonardo da Vinci airport. They chatted as they walked slowly across the tarmac to the pope’s waiting plane.

Monti later Friday faces the second of two confidence votes for his government in parliament cash advance flexible payments. The Senate on Thursday easily approved his government, formed of bankers, professors and CEOS aimed at saving Italy from its debt crisis.

Benedict then took off for the west African nation of Benin for a three-day visit where he will speak of the role of the church in Africa.

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