Wall St mixed over US debt ceiling jitters

Wall Street was mixed as concerns about the US debt ceiling, and the potential impact on the economy, moved to the fore.

Treasury Secretary Timothy Geithner warned that failure to lift the US$16.4 trillion debt limit by early March would "impose severe economic hardship."

Fitch Ratings on Tuesday said it expects that Congress will raise the debt ceiling and that the risk of a US sovereign default "remains extremely low".

However, failure to do so "in a timely manner will prompt a formal review of the US sovereign ratings," the ratings agency said in a statement.

Federal Reserve Bank of New York's general economic index fell to minus 7.8 in January from a revised minus 7.3 in December, signalling the sixth straight month of contraction for the region's manufacturing.

"The manufacturing sector in general has been stuck in neutral for several months now," Thomas Simons, an economist with Jefferies Group in New York, who had forecast an improvement in the Empire index to minus 2, told Bloomberg News. "It still hasn't shown any progress. We're still stuck in the mud here."

At least there was some relief from retail sales, which climbed a better-than-expected 0.5 per cent last month after gaining 0.4 per cent in November, according to Commerce Department data.

"Consumers continue to provide underlying support for the economy," Eric Green, chief economist at TD Securities in New York, told Reuters.

The report also helped underpin retail stocks including JC Penney, last up 1.9 per cent.

In afternoon trading in New York, The Dow Jones Industrial Average edged 0.02 per cent lower, while the Standard & Poor's 500 Index slipped 0.01 per cent and the Nasdaq Composite Index fell 0.24 per cent.

In Europe, the Stoxx 600 Index finished the session with a decline of less than 0.1 per cent from the previous close. The FTSE 100 managed a 0.2 per cent gain, though France's CAC 40 slid 0.3 per cent and Germany's DAX sank 0.7 per cent.

The German economy probably contracted about 0.5 per cent in the last three months of 2012, compared to the previous quarter, according to Federal Statistical Office data. For the whole of 2012, Europe's largest economy still grew, albeit at the slowest pace in three years.

Spain drew solid demand for its bond auction today, selling 5.75 billion euros of bills.

Italy is selling 6 billion euros of 15-year bonds via banks today, to be priced to yield 30 basis points more than the rate on the current benchmark, Bloomberg News reported, citing information from a person familiar with the offering, who asked not to be identified because terms aren't established. The security will be set against the 4.5 per cent bond due March 2026.