Stocks fall on threat of a European recession

The Dow Jones industrial average crept lower Wednesday as Europe edged closer to a recession that would hurt corporate profits in the U.S. The first earnings reports from American companies didn't add much encouragement.

Germany reported that its economy, the largest in Europe, shrank slightly at the end of last year. And the European Union revised its figures for economic growth in the third quarter to 0.1 percent, its slowest pace in more than two years.

"Europe is still the main risk," said Jeffrey Kleintop, chief market strategist at LPL Financial. "Yes, they've been making progress on their budgets, but they clearly have growth problems."

The Dow dropped 13.02 points, or 0.1 percent, to close at 12,449.45 in another day of light trading.

The European Commission also said Hungary has taken "no effective action" to contain its budget deficit. Stock markets in Germany and France fell slightly, and the euro dropped half a penny against the dollar, to $1.27.

The United States depends on Europe to buy about 20 percent of its exports, and concerns about Europe have led analysts to lower their profit estimates for U.S. companies.

Profits at S&P 500 companies are expected to rise 7.2 percent for the last three months of 2011, according to Standard & Poor's Capital IQ. That's much lower than the 17.6 percent growth reported in the third quarter.

Judging by the S&P 500 index, investors seem to think earnings could fall much further, Kleintop said. The index is trading at about 13 times the past year's earnings of its companies — close to what it was at the end of 1990, when the economy was in recession. Earnings fell 20 percent during that downturn.

The S&P 500 gained 0.4 of a point on Wednesday to 1,292.48. The Nasdaq composite index rose 8.26, or 0.3 percent, to 2,710.76. The Nasdaq has gained 4 percent this year, the most of the major indexes. The Dow is up 1.9 percent, the S&P 2.8 percent.

Supervalu, a grocery store operator, plunged after reporting a wider-than-expected quarterly loss because of high food prices and costs related to a turnaround plan. Its stock lost 12 percent.

Orange juice prices settled lower Wednesday. They hit their highest levels since 2007 on Tuesday when the U.S. government said that a potentially harmful fungicide had been found in Brazilian imports.

The futures contract for orange juice fell to $1.88 from $2.08 the day before. Futures have been rising since December, largely over concerns that cold weather in Florida could damage the crop there.

Even with Wednesday's decline, OJ is up 14 percent from its recent low of $1.65 on Dec. 21.

The recent jump in orange juice futures hit Coca-Cola, owner of Minute Maid, and PepsiCo, which has Tropicana. Coca-Cola sank 1.8 percent. PepsiCo fell 1 percent.

Among other large companies making moves:

— Urban Outfitters Inc. dropped 18 percent, the steepest fall of any stock in the S&P 500, following the abrupt resignation of its CEO, Glen Senk. The company, which also runs the Anthropologie and Free People stores, said last week that tough competition and a drive to reduce inventory led to more markdowns than expected during the holiday shopping season.

— Commercial Metals Co. fell 6 percent to $13.88 after investor Carl Icahn said he would end his hostile takeover attempt of the company. Only 23 percent of Commercial Metals' shareholders supported Icahn's $15-per-share offer, far short of Icahn's goal of 40.1 percent.

— Lennar Corp. rose 7.2 percent. Sales rose as the builder delivered more houses. Lennar reported a drop in quarterly earnings but said the housing market is starting to stabilize with the help of lower home prices and low interest rates.