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. Last Updated: 07/27/2016

Stocks Surge, Drop on Iraq, U.S. Data

NEW YORK/ LONDON -- Stocks fell near the unchanged mark in early morning trade Tuesday as a surprise drop in industrial output and profit warnings from companies like McDonald's deflated a rally over Iraq's agreement to readmit UN weapons inspectors.

"Despite the fact that Iraq allowing in inspectors will delay U.S. action, the market is back to basics -- back to analyzing data and earnings pre-announcements," said Alan Ackerman, a market strategist at Fahnestock and Co.

The broad Standard & Poor's 500 lost 0.61 points, or 0.07 percent, to 890. The blue-chip Dow Jones industrial average was off 12 points, or 0.15 percent, at 8,367.

The tech-packed Nasdaq Composite Index edged up 4 points, or 0.35 percent, to 1,280. All three market gauges had rallied more than 1 percent at the open.

Iraq said it had robbed the United States of any justification for war by agreeing to readmit inspectors without conditions. The market leapt at the open as the threat of a second Gulf War receded, but grim economic data and corporate profit warnings soon grabbed the spotlight.

U.S. industrial output posted an unexpected decline in August, the Federal Reserve said in a report that raised concerns about the manufacturing sector's fragile rebound.

The report added to persistent questions about the pace of the economic recovery.

McDonald's, the world's largest restaurant chain, added another sour note. The Dow member fell $1.09, or 5 percent, to $20.60 after cutting its 2002 earnings expectations before the open, citing lower-than-expected sales in the United States and Europe.

Exxon Mobil Corp., the world's No. 1 publicly traded oil company, lost $1.08 to $33.32.

World oil prices fell 2 percent after Iraq's offer reduced the threat of imminent action against the Gulf oil exporter which traders feared could disrupt shipments from a region that supplies a quarter of world oil.

European shares all but wiped out early gains Tuesday afternoon following further evidence that the U.S. economic recovery is faltering and may not be able to sustain growth in corporate profits.

Profit warnings from McDonald's and top U.S. supermarket chain Kroger served as illustrations of the weak outlook for profits.

"The U.S. industrial data is especially disappointing because manufacturing had been showing embryonic signs of life, going by recent durable goods and employment data," said economist David Brown of Bear Stearns.

The weak data stymied investors' optimistic mood after fears of a second Gulf War receded when Iraq showed itself willing to readmit weapons inspectors ending a face off with the United States.

"There was a relief rally this morning after Iraq signaled it would let the inspectors back in because it makes it more difficult for the United States to take unilateral action," said Richard Champion a European fund manager at Pavilion Asset Management in London.

By 5:11 p.m., the FTSE Eurotop 300 index of pan-European blue chips was flat at 904 points while the narrower DJ Euro Stoxx 50 index added 0.2 percent to 2,522 points.

The German ZEW institute's expectations indicator for Europe's largest economy, Germany, registered its third consecutive fall in September. The survey is seen by some as a precursor for the German Ifo business sentiment survey.

The ZEW's September index came in at 39.5 points against expectations of 35.9 points and 43.4 points in August.