Global worries outweigh U.S. news

The stock market offered a reminder Friday that even if the U.S. job market is improving, there’s plenty to worry about elsewhere in the world.

The unemployment rate fell in December to 8.5 percent, the lowest level in nearly three years. Yet stock indexes teetered between small gains and losses all day as traders fretted about Europe’s ongoing financial drama.

Italy’s borrowing costs spiked to dangerously high levels and the euro fell to a 16-month low against the dollar. U.S. bank stocks fell on concerns that the debt crisis will spread through the financial industry.

The Dow Jones industrial average ended down nearly 56 points and the S&P had a tiny loss, its first of the year.

Most European markets closed lower after new data showed economic sentiment and retail sales falling across the region. Unemployment is stuck at 10.3 percent in the 17 nations that use the euro.

Europe’s debt woes and China’s slowing economy are overshadowing signs of strength in the U.S. economy, said Doug Cote, chief market strategist at ING Investment Management.

“The global risks continue to exert their weight,” Cote said. Ultimately, improving U.S. stronger consumer demand, manufacturing activity and corporate profits will drive U.S. stocks higher, Cote said.

The Dow Jones industrial average fell 55.78 points, or 0.5 percent, to 12,359.92. Alcoa Inc. was the Dow’s biggest loser, slipping 2.1 percent. A Citi analyst forecast that the aluminum maker lost money in the fourth quarter of 2011 for the first time since the recession. Alcoa, which reports earnings Monday, said late Thursday it would close an aluminum smelter in Tennessee and other operations to cut costs.

The latest sign that the labor market is strengthening failed to spur buying by investors. The unemployment rate fell last month to 8.5 percent, while U.S. employers added a net 200,000 jobs, the Labor Department said.