Stock futures fall ahead of GDP report (AP)

NEW YORK – Stock futures dropped Friday as investors cautiously awaited the government’s first reading on gross domestic product.

GDP, the measure of the economy’s total quarterly output, is likely to confirm that the recovery slowed in the second quarter. The exact pace of that slowdown is what has had traders on edge in recent days. Economic data over the past few months has shown nearly all sectors of the economy have weakened as unemployment remains high and government stimulus programs end.

Economists polled by Thomson Reuters forecast the economy grew at an annual rate of 2.5 percent in the April-June quarter, slower than the 2.7 percent expansion in the first quarter.

A disappointing report would stoke fears that the economy will fall back into recession and likely erase some of the big gains seen in the stock market throughout the month.

The Dow Jones industrial average is entering the last day of July up 7.1 percent for the month. The big gains have come on the back of strong corporate earnings and profit outlooks that contradict the economic data that points to a slowdown. The big gains during the month pushed the Dow back into positive territory for the year.

Earnings and outlooks have been pushed to the background in recent days leading up to the GDP report. Economic reports and cautious words from the Federal Reserve and its chairman Ben Bernanke have also put a halt to the gains over the past few days.

Earnings could not provide any lift Friday. Merck & Co. reported better-than-expected adjusted earnings, but its revenue came up short of forecasts.

Ahead of the opening bell, Dow Jones industrial average futures fell 36, or 0.4 percent, to 10,373. Standard & Poor’s 500 index futures fell 4.90, or 0.5 percent, to 1,092.10, while Nasdaq 100 index futures fell 5.75, or 0.3 percent, to 1,851.50.

Uncertainty about the GDP report has sent investors into the safety of the bond market, which drove interest rates lower. The yield on the 10-year Treasury note, which moves opposite its price, fell to 2.95 percent from 2.99 percent late Thursday. Its yield is often used as a benchmark for mortgages and other consumer loans.

Merck shares dipped 26 cents to $34.80 in pre-opening trading.

European markets fell after reports that Spain’s top-notch credit rating is likely to be cut by Moody’s Investors Service. The potential downgrade comes as the country’s unemployment rate jumped to a 13-year high of 20.09 percent and the government continues to grapple with rising debt problems.

Spain’s IBEX 35 fell 1.1 percent. Britain’s FTSE 100 fell 0.7 percent, Germany’s DAX index dropped 0.6 percent, and France’s CAC-40 fell 0.6 percent. Japan’s Nikkei stock average fell 1.6 percent.