The word of the day in financial markets: Anxious.
U.S. stocks first plunged Friday after a dismal report on economic growth added to traders' fears about the consequences of a stalemate over raising the country's borrowing limit. But by late morning after President Barack Obama said there were multiple paths to a compromise, the Dow remained the only index that was down slightly.
If Congress fails agree to raise the debt limit before Aug. 3, the U.S. won't be able to pay all of its bills. The country might then default on its debt. Experts say that could be a disaster for financial markets and the broader economy.
The combination of bad economic news and growing worries about a debt deal were evident in nearly every measure of investor confidence.
—Bond yields fell as more investors sought safer investments.
—The U.S. dollar fell against the yen and Swiss franc, as traders considered them safer. The dollar remained up against some other currencies.
—Gold prices rose by nearly 1 percent.
—The cost to protect against a U.S. default within the next year reached a record high. The cost to insure Treasurys for one year jumped 54 percent this week.
Many analysts have said they believe the debt dispute will be resolved before the deadline. If that confidence fades, the market could plunge more sharply, said Jack Ablin, chief investment officer at Harris Private Bank.
"I think there's a growing sense of resignation that we could go into technical default" and a downgrade of U.S. debt looks more likely, he said.
But there are other concerns for investors, too. The government said early Friday that economic growth slowed in the first half of the year to its weakest pace since the recession ended two years ago.
The news overshadowed strong earnings reports from drugmaker Merck & Co. Inc. and oil giant Chevron Corp.
In morning trading, the Standard & Poor's 500 index is flat at 1,301. The Dow Jones industrial average dropped 34, or 0.3 percent, to 12,208. The Nasdaq composite index is up 5, or 0.2 percent, to 2,771.
Traders flocked to bonds, considered to be a safer investment, pushing the yield on the benchmark 10-year Treasury note to 2.85 percent from 2.95 percent on Thursday. As demand for bonds increases, the government is able to pay bondholders lower interest rates, causing yields to fall. Concerns that bond yields could spike on fears of a default have so far been unfounded.
Gold rose about $10, or just under 1 percent, to $1,627 per ounce. Gold prices tend to rise when investors are nervous about turbulence in other markets.
House Republicans are trying for the third straight day to pass a bill that would raise the borrowing limit while cutting federal spending by nearly $1 trillion.
President Barack Obama said again Friday that he will not sign such a bill. Democrats say any bill must include revenue increases from higher taxes as well as cuts.
A default by the U.S. could increase borrowing costs for the government and consumers. That could dig the nation into a deeper deficit hole and discourage people from borrowing to buy homes and cars.
Even if Congress does reach a deal, rating agencies might still downgrade U.S. debt, which would likely have the same effect on borrowing costs.
The debate over increasing the nation's borrowing authority has cast a shadow of uncertainty over the financial markets all summer. Any remaining calm faded before the markets opened Friday, as news of weak economic growth pushed some investors to sell quickly.
The dollar fell 1.5 percent against the Swiss franc as traders' confidence in the reserve currency eroded.
The market-wide selloff pushed shares of Merck down 2 percent, despite the company's reporting strong earnings before the markets opened. The drugmaker said its second-quarter profit nearly tripled from a year ago. It announced plans to cut 11,830 jobs.
Shares of Chevron also lost a fraction of a percent despite strong second-quarter earnings. The company said its profit jumped 43 percent, beating analysts' estimates, as higher oil and gasoline prices offset a decline in production.
Among the few gainers was travel website operator Expedia Inc. Shares surged 8 percent after the company said its second-quarter net income rose more than expected because bookings increased and prices for plane ticket and hotel rooms rose.
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