The Dow Jones industrial average was trading near its highest close since the 2008 financial crisis Thursday after solid news on factory orders and strong earnings from U.S. manufacturers highlighted the economy’s growing momentum.

Broader market indexes edged lower, though they have surged this year, too. Traders appear less afraid of spillover damage from the European debt crisis, and data on jobs and manufacturing have been consistently strong.

“With global risk off center stage and attention going back to the fundamentals, this market was ready to explode, which is exactly what it is doing,” said Doug Cote, chief market strategist with ING Investment Management.

Before the market opened, the government reported that unemployment claims rose only modestly last week after a steep decline the week before. The long-term trend still indicates an improving job market.

Orders to factories for long-lasting manufactured goods increased in December for the second straight month, and a key measure of business investment rose solidly.

That strong demand was apparent in quarterly earnings reports from U.S. manufacturers. 3M stock rose 1.1 percent after its fourth-quarter profit beat Wall Street’s estimates.

Caterpillar, the world’s biggest heavy equipment maker, soared 2.5 percent, the most of the 30 companies in the Dow, after beating analysts’ estimates last quarter. It said it expects to do the same this year, as global demand remains high.

The Dow Jones industrial average was up 27 points, or 0.2 percent, at 12,783 just after 11 a.m. EST. 3M, Caterpillar and Kraft Foods led the gains.

The Dow is within reach of its 2011 high of 12,810, reached in April. The last time it closed higher than that was on May 20, 2008, when it settled at 12,826. The Dow is up nearly 5 percent so far this year. The S&P 500 and Nasdaq have gained even more.

The Dow would need to rise another 11 percent to get to its record high close of 14,164, reached on Oct. 9, 2007.

The Standard & Poor’s 500 index fell three points to 1,323. It was dragged lower by volatile financial companies and telecommunications firms. The Nasdaq composite index shed six points to 2,812.

AT&T fell 2.4 percent, by far the most of the 30 companies in the Dow, after its earnings missed Wall Street’s forecasts. The company remains heavily dependent on the Apple iPhone, which it pays to subsidize, but recently lost its exclusive rights to sell the phone in the U.S.

Stocks had their highest close in eight months Wednesday after the Federal Reserve said it plans to keep interest rates extremely low until late 2014 to encourage lending and investment and support the economic recovery.

The announcement lifted investments across many markets and continents. Bond prices rose in the U.S. and Europe. So did commodities, the euro, emerging market currencies and European stocks.

The yield on the 10-year Treasury note fell to 1.95 percent from 1.99 percent late Wednesday. The prospect of more bond-buying by the Fed helped make Treasurys more attractive. A bond’s yield falls as demand for it increases.

A strong bond auction by Italy also brightened Europe’s outlook, signaling to investors that lenders believe Italy will not be dragged into the debt crisis. And Greece resumed talks with its lenders over writing off some of its crushing debt.

Benchmark indexes in France, England, Germany and Italy rose 1 to 2 percent.

Among the other U.S. companies making big moves after reporting quarterly earnings:

• Time Warner Cable Inc. rose 7 percent after the company reported earnings that were far above analysts’ estimates. The national cable TV provider also raised its dividend 17 percent to 56 cents per share and announced plans to buy back more of its own stock.

• United Continental Holdings, the parent company of United and Continental airlines, surged 7.4 percent. It said the cost of integrating the two companies fell. Its fourth-quarter loss narrowed, and its adjusted earnings were more than double what analysts had expected.

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Follow Daniel Wagner at www.twitter.com/wagnerreports.

LONDON (Reuters) – European stocks rose and the euro stayed under pressure on Tuesday as investors weighed the debt turmoil in the euro zone against an improved U.S. economic picture that looks set to deliver upbeat corporate results.

European shares gained from the start on Tuesday, led by mining stocks after forecast-beating results from U.S. aluminum producer Alcoa (AA.N) improved the outlook for commodities.

"A good start to the earnings season; it shows the demand outlook is not so bad and we could get more positive surprises," Mike Lenhoff, chief strategist and head of research at Brewin Dolphin Securities, said.

The key FTSEurofirst 300 (.FTEU3) index was up 1.3 percent at 1,021.47 points, while the STOXX Europe 600 euro zone banking index (.SX7P) gained around 2.0 percent.

Nervous currency markets remained focused on the outlook for the euro zone economy, upcoming government debt sales and how the region's banks will raise much needed capital to repair their balance sheets.

The euro rose slightly to trade around $1.2792, holding firmly above the 16-month lows of $1.2666 hit on Monday, due mainly to traders buying back the currency to square their positions after recent heavy selling.

The Bank of France focused attention on the ailing euro zone economy by reporting growth had stalled at zero in the fourth quarter of 2011 in the region's second-biggest economy.

But separate data showed French industrial production rose 1.1 percent in November, bucking expectations for no growth as output from refineries rose from weak levels of a year ago during strikes.

"There's short-covering and a bit of risk appetite with positive equity markets overnight," said Niels Christensen, currency strategist at Nordea in Copenhagen.

"But we have the debt auctions, the ECB meeting on Thursday and it's still a weak and vulnerable euro…, with no sign of a quick solution to the debt problems in the euro zone," he said.

The worries about the health of the region's banks saw commercial lenders' overnight deposits held at the European Central Bank hit another record high of 482 billion euros.

The banks are awash with cash after taking an unprecedented 489 billion euros in the ECB's first-ever three-year liquidity operation late last month, but they are still uncertain about what to do with the money in the longer term.

French banks were also likely to be in the spotlight after an internal memo obtained by Reuters on Monday showed Societe Generale (SOGN.PA) is forecasting a sharp drop in investment bank revenue in 2012, weighed by higher funding costs and efforts to slash its balance sheet.

AUSTRIAN EXPOSURE

Earlier, data showed China's exports and imports grew at their slowest pace in more than two years in December. The figures fuelled expectations of more policy action from Beijing to support the world's second biggest economy, and most Asian markets gained on Tuesday.

Wall Street ended slightly higher on Monday in a light-volume session as investors stayed cautious ahead of the earnings season that kicked off with Alcoa.

Tuesday's focus in euro zone debt markets will mainly be on Austria's auction of 1.3 billion euros of 10-year bonds which should give an indication of how worried investors are about the country's exposure to neighboring Hungary, which is locked in a dispute with the IMF over international aid.

Bund futures were slightly lower in midmorning trade.

Elsewhere, British retailers finished 2011 with the best sales growth in months as hefty discounting lured in shoppers, while weak business a year earlier flattered the figures, the British Retail Consortium said on Tuesday.

It added that it expected another tough year.

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The euro zone crisis: http://r.reuters.com/xyt94s

China imports and exports: http://link.reuters.com/ked55s

Euro zone bond yields: http://r.reuters.com/hyb65p

BRC UK retail sales http://link.reuters.com/vyv85s

ECB bank borrowing, deposits http://link.reuters.com/nyd85s

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^

(Additional reporting by Joanne Frearson and Jessica Mortimer; Editing by John Stonestreet)

LONDON – A strong U.S. jobs report boosted world financial markets on Friday, although nagging worries about Europe’s debt crisis pushed the euro currency to a new 17-month low against the dollar.

The U.S. Labor Department said employers added 200,000 jobs in December, pushing the unemployment rate down to 8.5 percent, the lowest since February 2009. The rate has dropped for four straight months. The job gains cap a six-month stretch in which the U.S. economy generated 100,000 jobs or more in each month — something that hasn’t happened since April 2006.

An improvement in the U.S. labor market is crucial for global markets because American consumer spending accounts for a fifth of the world’s economic activity. A recovery in the U.S. would also mitigate the impact of the sharp slowdown in Europe.

Longer-term concerns about the euro and the region’s financial system pushed the euro currency to a 17-month low on Friday — the euro lost another 0.6 percent Friday to $1.2724, the weakest since July 2010.

European market indexes, which had opened higher on hopes for upbeat U.S. data, rose further. Britain’s FTSE 100 rose 0.4 percent to 5,644.55, while Germany’s DAX rose 0.6 percent to 6,131.25. France’s CAC-40 rose 0.8 percent to 3,170.85.

Wall Street was also expected to gain on the open, with Dow futures up 0.4 percent at 12,374 and S&P 500 futures 0.5 percent higher at 1,279.40.

Asian market indexes closed lower, reacting to the poor economic and financial indicators out of Europe the previous day.

That stream of poor European data continued Friday, with a drop in retail sales and economic sentiment among consumers and businesses during the key spending month of December. Unemployment in the 17-nation eurozone also remained at a worrying 10.3 percent and could worsen as the region slides back toward recession.

Even strong economies like Germany were being affected by the gloom generated by the debt crisis. Industrial orders in Germany dropped sharply in November as demand from abroad dropped, nearly erasing a strong gain from the previous month. Orders were down 4.8 percent compared to the previous month, the Economy Ministry reported Friday. In October, orders rose 5 percent.

Italy’s benchmark 10-year bond yield edged further above 7 percent, a borrowing rate that is considered unsustainable over the longer term.

Italy, along with many other European governments, has to roll over huge amounts of debt in coming months. It is trying to restore investor confidence in its public finances to get those bond yields down and pay lower rates when it raises cash from capital markets.

Traders were also watching for comments from Italian Premier Mario Monti, who was holding talks Friday in Paris with French President Nicolas Sarkozy.

European Banks, meanwhile, are hurting due to fears that they will take big losses on their holdings of government debt and will struggle to raise new cash to plug those holes.

Trading in UniCredit, Italy’s largest bank, was halted for the second straight day Thursday after the stock lost a quarter of its value in two days. The bank says it would need to offer huge discounts to investors to raise money in a new share sale. The stock was down 2 percent Friday after temporarily dropping 11 percent.

Outside the eurozone, Hungary slid deeper into its own financial crisis. The Fitch Ratings agency downgraded Hungary’s credit grade by a notch to BB+ — junk status — citing the country’s disagreements with the EU and IMF over conditions linked to rescue loans.

Hungary had to pay a staggeringly high interest rate of 10 percent on its 12-month debt in an auction Thursday, an indication it is losing investors’ trust.

In Asian, stocks ended mostly lower as they reacted to the previous day’s European market jitters. Japan’s Nikkei 225 Index closed 1.2 percent lower at 8,390.35. Hong Kong’s Hang Seng index fell 1.2 percent at 18,593.06 and South Korea’s Kospi fell 1.1 percent to 1,843.14. Benchmarks in Taiwan and Indonesia also fell. India and Singapore rose.

In mainland China, the benchmark Shanghai Composite Index gained 0.7 percent to 2,163.39, while the smaller Shenzhen Composite Index gained 0.5 percent to 817.78.

Japanese stocks are hurt by the yen’s rise against the dollar, which makes exports less competitive internationally. On Friday, the dollar was steady around 77.10 yen.

Benchmark oil for February delivery rose 67 cents to $102.48 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell by $1.41 to end Thursday at $101.81 in New York.

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Pamela Sampson in Bangkok contributed to this report.

LONDON – Global stocks were muted on Friday as concerns about Europe’s debt crisis flared back up, with Fitch ratings agency warning it could downgrade six eurozone nations, including Italy and Spain, two of the shakiest economies in the region.

Although Fitch affirmed France’s top AAA rating, it announced it was considering downgrading Italy, Spain, Ireland, Belgium, Slovenia and Cyprus.

It said that following last week’s EU summit, it “has concluded that a ‘comprehensive solution’ to the eurozone crisis is technically and politically beyond reach.”

The warnings came at the end of a day full of negative news for Europe. Ireland’s economy contracted much more than expected in the third quarter, Spanish regional debt rose sharply over the past year, and EU officials admitted that talks to get Greece’s private creditors to take losses on their bonds were not going as well as hoped.

The affirmation of France’s rating and the Italian government’s survival of a confidence vote were rare bright spots in a week of dire financial news for Europe.

After trading higher most of the day, European stocks closed lower. Britain’s FTSE shed 0.3 percent to 5,387.34 and Germany’s DAX lost 0.5 percent to 5,701.78.

France’s CAC-40 closed 0.9 percent lower at 2,972.30 — its losses were driven in part by a report from the national statistics agency predicting a recession in the country over this quarter and the next. Fitch’s affirmation of the country’s rating came only after markets closed.

Investor sentiment had been stronger earlier in the day, as traders focused on an improvement in U.S. economic indicators.

This week, U.S. government data showed the number of people applying for unemployment benefits last week was at its lowest since May 2008. That’s a sign that layoffs are easing, a first step toward bringing down the unemployment rate, which currently stands at 8.6 percent.

Traders were also encouraged by a report from the Federal Reserve of New York that its index measuring regional manufacturing jumped to the highest level since May. That was far more than economists were expecting. A similar report from the Philadelphia branch of the Fed also increased more than analysts anticipated.

Early gains in Wall Street were trimmed by the concerns in Europe. The Dow Jones industrial average dipped 0.2 percent to 11,848.15, while the S&P 500 gained 0.1 percent to 1,217.24.

The euro was steady at $1.3013, as was the dollar against the Japanese yen, at 77.85 yen.

In Asia, Japan’s Nikkei 225 index closed 0.3 percent higher at 8,401.72. South Korea’s Kospi rose 1.2 percent to 1,839.96 and Hong Kong’s Hang Seng added 1.4 percent to 18,285.39. Benchmarks in Singapore, Taiwan and Indonesia also rose.

Mainland China shares ended a six-session losing streak, with the benchmark Shanghai Composite Index gaining 2 percent to close at 2,224.84.

Analysts stopped short of calling the gains a recovery, as trading was light ahead of the holidays.

Signs emerged that the Chinese central bank may have intervened in the currency market by offering dollars to support the Chinese yuan, which has been weakening in recent sessions. That raised speculation that authorities may plan more market-boosting measures.

The yuan strengthened to a record 6.3294 against the U.S. dollar, but later eased to 6.3446. Weakness in the yuan could raise tensions with countries such as the U.S. that complain it is already undervalued.

Benchmark oil for January delivery was up 26 cents to $94.13 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.08 to finish at $93.87 per barrel on Nymex on Thursday.

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Pamela Sampson in Bangkok and Elaine Kurtenbach in Shanghai contributed to this report.

BANGKOK – Asian stock markets fell Tuesday as criticism by ratings agencies sparked wariness over a historic plan by the European Union to bind their economies closer together in an effort to fix a massive debt crisis.

Benchmark oil fell below $98 per barrel while the dollar was steady against the euro and the yen.

Japan’s Nikkei 225 fell 1.4 percent to 8,529.14. South Korea’s Kospi gave up 1.6 percent to 1,868.66. Hong Kong’s Hang Seng lost 1.3 percent to 18,341.16 and Australia’s S&P/ASX 200 dropped 1.5 percent to 4,189.30. Benchmarks in mainland China, Singapore, Taiwan and Indonesia also fell. Malaysia rose.

Markets rallied on Friday when the EU adopted a new fiscal pact meant to prevent a repeat of the financial fiasco that is now sweeping across countries that use the euro.

But that optimism dried up Monday, when credit rating agencies Moody’s and Fitch both said the deal was insufficient and would not materially ease debt pressure in Europe. Moody’s warned that it will review all EU governments’ ratings for possible downgrades in early 2012.

“Following the comments from Moody’s and Fitch, we expect to hear from S&P again soon for some post-summit comments. We already know S&P has France on ratings watch and may strip it of its AAA credit rating,” Stan Shamu of IG Markets in Melbourne said in a report.

Under the deal, all 17 countries that use the euro agreed to allow a central European authority to oversee their future budgets and impose tighter controls on spending. They also agreed to automatic penalties if countries spend too much.

But Moody’s said the pact does not address Europe’s immediate problem: the crushing debt loads of some nations and their rising borrowing costs.

High-tech shares slumped, tracking losses by industry bellwether Intel Corp., which fell 4 percent in New York after the chip-maker said its fourth quarter revenue will be lower than expected because flooding in Thailand has disrupted the supply of components.

South Korea’s Hynix Semiconductor, the world’s second-largest memory chip maker, lost 2.5 percent. Taiwan’s Acer Inc., the world’s third-largest personal computer maker, fell 1.3 percent.

Wall Street traded lower Monday. The Dow closed down 1.3 percent at 12,021.39, a loss erased nearly all of the Dow’s gains from last week. The S&P 500 lost 1.5 percent to close at 1,236.47. The Nasdaq composite index dropped 1.3 percent to 2,612.26.

Benchmark oil for January delivery fell 3 cents to $97.74 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell $1.64 to finish at $97.77 per barrel on the Nymex on Monday.

In currency trading, the euro was unchanged from $1.3186 late Monday in New York. The dollar was slightly up at 77.92 yen from 77.91 yen.

TWO THUMBS DOWN: Stocks fell Monday as two big credit rating agencies criticized a deal between European leaders last week that is aimed at easing the region’s debt crisis. Fitch said the deal to bind Europe’s budgets more closely will make little difference, and predicted a deep recession there. Moody’s said it will reconsider the ratings of all European Union nations in the first quarter of 2012.

STOCKS PLUNGE: Investors delivered a negative verdict as well, sending stocks sharply lower all day. The Dow Jones industrial average lost 163 points.

WHAT’S MISSING: The deal gives a central European authority more power to punish nations that overspend. That might prevent a future crisis, but it doesn’t address Europe’s immediate problem: some countries’ crushing debt loads and spiraling borrowing costs.

U.S. stocks fell Monday after Moody’s Investors Service said last week’s European fiscal pact will not deter it from reconsidering the credit ratings of all European Union nations.

The Dow Jones industrial average fell 170 points in the first hour of trading. The euro weakened against the dollar and the yields on Italian and Spanish government bonds rose as investors became more nervous about holding the debt of those countries. European stock indexes fell broadly.

Moody’s said that last week’s summit of European leaders produced “few new measures” and that Europe’s financial crisis remains in a “critical and volatile stage.”

The 17 nations that use the shared currency and the region in general remains “prone to further shocks and the cohesion of the euro under continued threat,” Moody’s said. As a result, the agency said it would still review the creditworthiness of European countries in the first three months of 2012.

The warning from the credit rating agency deflated optimism about last week’s pact, which called for tougher fiscal discipline in countries the euro and greater oversight of national budgets by a central authority.

Yields on Italian and Spanish bonds rose back toward dangerously high levels. The yield on the benchmark Italian 10-year bond rose 0.41 percentage point, a large move, to 6.64 percent. Spain’s main bond yield rose a quarter point to 5.90 percent. Greece and Portugal were forced to seek bailouts from their creditors when their bond yields approached 7 percent.

U.S. stocks fell broadly, with declines for all 30 stocks in the Dow Jones industrial average and all 10 industry groups in the Standard & Poor’s 500 index. The Dow’s biggest lower was Intel Inc., which sharply reduced its revenue outlook because of supply chain problems.

Financial stocks fell sharply on fears that big banks could be affected by more turmoil in the European financial system. Bank of America Corp. fell 3.8 percent, the most in the Dow. JPMorgan Chase & Co. lost 2.7 percent, Morgan Stanley 5.5 percent.

The Dow fell 171 points, or 1.4 percent, to 12,013 in the first hour of trading. Intel Corp., fell 3.8 percent after the chipmaker said a shortage of hard drives will limit shipments, pushing its fourth-quarter revenue far below what Wall Street had expected.

The Standard & Poor’s 500 index fell 22 points, or 1.8 percent, to 1,233. All 10 of its industry groups lost ground. The Nasdaq composite index dropped 51 points, or 1.9 percent, to 2,596.

European markets were sharply lower, after soaring late last week on optimism about a summit aimed at solving the region’s debt crisis.

Moody’s noted that last week’s pact does not address Europe’s root problem: The heavy debt loads of many nations and their rising borrowing costs. Greece, Portugal and Ireland have had to accept bailouts. Italy and Spain are teetering because their debts scare investors, who in turn ratchet up their borrowing costs.

Stocks in Spain and Italy led European markets lower. Spain’s IBEX 35 fell 2.6 percent, Italy’s FTSE MIB 2.7 percent. Germany’s DAX 2.4 percent.

In corporate news, Endo Pharmaceuticals jumped 5 percent after federal regulators approved a new form of one of its pain medications, extending its patent rights over the drug.

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Follow Daniel Wagner at www.twitter.com/wagnerreports

PARIS – Enthusiasm for riskier assets such as stocks and the euro faded Monday as investors worried that Europe’s new pact aimed at fixing the continent’s debt crisis would be insufficient.

Markets had rallied on Friday, when the European Union adopted a new fiscal pact meant to prevent a repeat of the financial fiasco that is now sweeping across countries that use the euro. But that optimism quickly dried up as traders sought more support for European financial markets in the short-term as well.

Credit rating agency Moody’s said last week’s summit “offers few new measures.”

“The announced measures therefore do not change Moody’s previously expressed view that the crisis is in a critical and volatile stage,” Moody’s said, warning that it still intends to review all EU governments’ ratings for possible downgrades during the first three months of 2012.

Under the deal announced in Brussels Friday, all 17 countries that use the euro agreed to allow a central European authority to oversee their future budgets and impose tighter controls on spending. They also agreed to automatic penalties if countries spend too much.

Europe’s new “fiscal compact” also calls for the launch of a permanent bailout fund for euro nations in 2012 — a year ahead of schedule — and an additional euro200 billion ($267 billion) to the International Monetary Fund for a separate emergency fund for countries in crisis. National central banks will provide the money to the IMF.

Analyts warn that the deal doesn’t help cut existing debt, which has caused Greece, Ireland and Portugal to need bailouts and is threatening Italy and Spain.

That loose end brought into focus the future monetary policy of the European Central Bank, and whether it would be willing to buy enough national bonds from troubled countries to keep interest rates down. The ECB indicated last week that it would not.

“The (EU) measures may not be sufficient for markets, with disappointment at the lack of ECB action in terms of stepping up to the plate as lender of last resort still weighing on sentiment,” said Mitul Kotecha, analyst at Credit Agricole CIB.

Britain’s FTSE 100 fell 0.5 percent to 5,500.94. Germany’s DAX dropped 1.8 percent to 5,878 and France’s CAC-40 lost 1.2 percent to 3,133. Italy’s main stock index fell 1.9 percent while its bond yields rose sharply.

Wall Street also headed for a lower opening, with Dow Jones industrial futures dipping 0.4 percent to 12,090 and S&P 500 futures down 0.5 percent at 1,247.50.

Although Italy managed to raise euro7 billion ($9.4 billion) in an auction of 12-month bonds, its yields on the secondary market — where the issued bonds are then traded freely — continued to rise.

It’s 10-year bond yield was up 0.49 of a percentage point at 6.72 percent, not far from the 7 percent level that is considered unsustainable in the longer term. The rise in the yields indicates investors are more worried that the country might eventually default.

Nationwide strikes hit Italy as unions protested against the austerity measures meant to boost confidence in the country’s financial future.

In Greece, international austerity inspectors arrived for talks on a second rescue loan package agreed weeks ago but not yet finalized. Officials from the European Union, the European Central Bank and the International Monetary Fund are due to hold meetings at the finance ministry later Monday.

Asian stocks mostly closed higher, as they caught up with the gains made in Europe and the U.S. on Friday.

Japan’s Nikkei 225 index jumped 1.4 percent to close at 8,653.82. South Korea’s Kospi added 1.3 percent to 1,899.76 and benchmarks in Singapore, Taiwan, Australia and Indonesia also rose.

Hong Kong’s Hang Seng swung from early gains to end trading in the red, albeit marginally, at 18,575.66. China’s Shanghai Composite Index fell 1 percent to 2,291.54 as a three-day economic conference of Chinese leaders got under way.

Benchmark oil for January delivery was down $1.22 to $98.19 per barrel in electronic trading on the New York Mercantile Exchange. The contract rose $1.07 to finish at $99.41 per barrel on the Nymex on Friday.

In currencies, the euro fell to $1.3270 from $1.3370 late Friday in New York. The dollar rose to 77.66 yen from 77.54 yen.

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Pamela Sampson in Bangkok contributed to this article.

HONG KONG – Asian stocks tumbled Friday as investors grew increasingly pessimistic that European leaders would conclude a crucial summit without finding a solution radical enough to fix the continent’s debt crisis.

Crude oil fell to near $98 while the dollar strengthened against the euro but weakened versus the yen.

Japan’s Nikkei 225 fell 1.6 percent to 8,526.69 as the government said the economy grew slightly less in the third quarter. South Korea’s Kospi lost 1.9 percent to 1,875.81 and Hong Kong’s Hang Seng shed 2.6 percent to 18,605.92.

Benchmarks in Australia, Singapore, Taiwan and India also fell.

Mainland Chinese shares fell less than other Asian markets after inflation data for November fell to a lower than expected 4.2 percent, giving officials more wiggle room to ease credit to support growth in the economy. The benchmark Shanghai Composite Index dropped 0.6 percent to 2,315.24.

Germany and France, the two biggest economies in the eurozone, had hoped to persuade all 27 members of the European Union to back a change to the EU treaty that would impose tight fiscal rules on its members — a modification thought necessary to extricate the region from its debt crisis.

But after a late night of negotiations, Herman Van Rompuy, president of the European Council, announced Friday in Brussels a new treaty: one that will include the 17 eurozone states plus six other EU countries — not all 27 EU members.

The news follows disappointments from the day before, including comments by European Central Bank President Mario Draghi on Thursday that the bank had no immediate plans for a large-scale purchase of government bonds, which would have kept down the borrowing costs of weak countries like Italy and Spain.

Investors had been counting on such a move to help ease the region’s debt crisis.

“Without the ECB’s active participation in purchasing sovereign debt in Europe, there is no way you can solve the current crisis, and so the market was really disappointed,” said Francis Lun, managing director of Lyncean Holdings, a Hong Kong-based investment holding company. “American stock markets fell sharply and the contagion spread to Asia.”

European leaders will hunker down Friday for a second day of negotiations.

“Markets regard the summit as a final chance to save the euro,” strategists at Credit Agricole CIB said in a research note.

In New York on Thursday, the Dow Jones industrial average dropped 1.6 percent, to close at 11,997.70. The Standard & Poor’s 500 index ended 2.1 percent lower at 1,234.35. The Nasdaq lost 2 percent to close at 2,596.38.

Benchmark oil for January delivery fell 20 cents to $98.14 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell $2.15 to end Thursday at $98.34.

In currencies, the euro weakened to $1.3333 from $1.3340 late Thursday in New York. The dollar weakened to 77.57 yen from 77.67 yen.

BANGKOK – Asian stocks fell Thursday as hopes faded that a bold solution might be found to a crippling debt crisis that is threatening to drag Europe into a deep recession.

Japan’s Nikkei 225 fell 1.1 percent to 8,629.15. South Korea’s Kospi lost 1 percent to 1,900.01 and Hong Kong’s Hang Seng tumbled 1.4 percent to 18,970.23. Australia’s S&P/ASX 200 dropped 0.4 percent to 4,276. Benchmarks in Singapore, Taiwan and mainland China also fell.

Just hours before a key summit of European leaders was to open in Brussels, doubts were surfacing that a lasting solution to the two-year-old crisis might be reached.

One point of friction has surfaced over a proposal by French President Nicolas Sarkozy and German chancellor Angela Merkel, leaders of the two economic powerhouses among the 17 nations that use the euro. They are demanding far-reaching changes to the treaty governing the European Union to enforce fiscal discipline among its members.

That proposal is being met with resistance by the European Council, an institution that defines the priorities of the entire 27-nation EU. Its president, Herman Van Rompuy, favors going a simpler route — amending existing rules that apply to the 17 euro countries to avoid the trickier step of requiring every country to approve the new treaty.

The disagreement has soured hopes for an immediate solution to the crisis.

“Normally this kind of talk would take place behind closed doors. The fact that it’s in the open suggests it already has and normal channels have, at least temporarily, broken down,” analysts at DBS Bank Ltd. said in a research note.

Additionally, certain provisions in the Franco-German proposal, such as setting automatic penalties for countries that overspend, are controversial and have the potential to delay an agreement.

Urgency was added to the situation Wednesday when ratings agency Standard & Poor’s threatened to downgrade the bonds of all EU countries because their economies were intricately linked with the 17 nations that use the euro.

On Wall Street, the Dow rose 0.4 percent to close at 12,196.37. The Standard & Poor’s 500 index rose 0.2 percent at 1,261.01. The Nasdaq composite index fell marginally to 2,649.21.

Benchmark oil for January delivery was down 13 cents to $100.36 a barrel in electronic trading on the New York Mercantile Exchange. The contract fell 79 cents to end at $100.49 per barrel on the Nymex on Wednesday.

In currencies, the euro rose to $1.3399 from $1.3394 late Wednesday in New York. The dollar was nearly unchanged at 77.65 yen from 77.66 yen.