Rally fizzles, ending rough week

An early rally faded on the stock market Friday, leaving indexes down about 3 percent for the week as worries resurfaced about a breakup of the euro.

The Dow Jones industrial average closed down 2 points. It was up as many as 99 points in the morning after the Italian government won a confidence vote on austerity measures. That gain evaporated around midday after Fitch warned that it might downgrade the debt of Italy, Spain and four other countries that use the euro. After markets closed, Moody’s downgraded Belgium’s debt two notches and said more cuts were possible.

Materials and industrial companies rose, signaling that traders expect the U.S. economic recovery to remain on track. Utilities, health care and consumer staples companies lagged the market as traders sold stocks that are considered to be safer when the economy is weak.

The Dow broke a three-day slump Thursday on news that claims for unemployment benefits plunged last week and measures of manufacturing in the Northeast improved dramatically. The Dow lost 360 points over the first three days of the week as investors questioned whether Europe’s agreement to more closely coordinate fiscal policy would be enough to save the euro from a catastrophic breakup.

Some analysts believe nervousness about Europe this fall and winter pushed stock prices too far. Investment adviser Uri Landesman, president of Platinum Partners, expects stocks to rise into next year because of the growing likelihood that economic news and European headlines will remain positive.

“The odds are, the news is going to be better than the market is discounting,” Landesman said. He said the market is near the low end of its recent trading range, and a dose of positive news could set off a mini-rally. Any market moves next week could be sharp as trading volume thins out before the Christmas holiday, Landesman said.