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Chinese Economic Reports Put Jittery Market More On Edge

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aders may tread cautiously Friday, with Europe a concern and a boatload of Chinese economic data due to hit when world markets are closed for the weekend.

China’s surprise quarter-point rate cut Thursday helped fire up a stock-market rally, which faded as the day wore on. The Dow , closed up 46 points at 12,460, and the S&P was lower by a fraction of a point at 1314. The Nasdaq sold off with tech, losing 13 points to 2831.

Financial stocks were lower into the close, but still up close to 3 percent for the week. Focus turned back to Europe in the afternoon, after Fitch cut Spain’s credit rating.

“All eyes will remain mostly on Europe to see if they can get their act together,” said Art Cashin, director of floor operations at UBS. “I think the market is convinced (European leaders) are beginning to see how bad this is, and they’re going to be pushing hard and harder.”

In the U.S., international trade is reported at 8:30 a.m. ET Friday and wholesale trade is released at 10 a.m.

"You had two days up in a row. You’re entitled to a pull back, and Friday is the best day for that. (Stocks) are a little ahead of themselves,” said Cashin. He said traders were cheered early in the day by the Chinese rate cut but began to question whether it means the data released this weekend will be particularly weak.

The Chinese economic data includes industrial production, retail sales, and inflation data, all expected Saturday.

“I think investors are going to square positions over the weekend,” said Jack Ablin, CIO of Harris Private Bank. Ablin said he’s positive on stocks, but he does not believe the run this week is the start of a big bull run.

Investors, however, are too pessimistic. “I think theU.S. investor is selling the U.S. economy short. I think there’s still positive stuff going on. The new orders over inventories are as wide as I’ve seen. Manufacturing resurgence is strong. The problem is you could still see ISM go through the roof, and there’s still no jobs,” he said.

Fed Chairman Ben Bernanke kept the status quo when he testified before Congress Thursday. He offered no new clues on whether the Fed will ease and said it had tools at its disposal if it needs to use them.

“I think what Chairman Bernanke told us today is you really have to keep an eye on what’s going on in Europe. If Europe deteriorates from here, the Fed would take out some more insurance and begin easing,” said Brian Edmonds, head of interest rate trading at Cantor Fitzgerald.

In the coming week, investors are watching for news on Spanish banks’ capital needs.

“I think one interesting thing is you have the French elections over the weekend – and the big China data dump,” said Brown Brothers currency strategist Mark McCormick. The elections could give French President Francois Hollande more support if leftists gain seats in the Parliamentary election, as expected. The voting takes place Sunday and then again next week.

McCormick saidChina could be pre-emptingweak data with the rate cut. “It’s probably going to be a bit soft given the slowdown in other data we’ve seen recently,” he said. China purchasing manager’s data showed the economy was slowing last month. The HSBC PMI fell to 48.4 from 49.3 in April. That tracks small and medium sized businesses, and any number under 50 indicates contraction.

The Chinese rate cut follows a cut by the Reserve Bank of Australia this week. Miller Tabak market strategist Peter Boockvar said Bank of Korea meets Friday, and Thailand, Indonesia and Philippines meet next week, while India meets the following Monday, so there could be further central bank actions in the next several days.

Follow Patti Domm on Twitter: @pattidomm

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  • Patti Domm

    Patti Domm is CNBC Executive Editor, News, responsible for news coverage of the markets and economy.

  • A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

  • CNBC Senior Commodities Correspondent and Personal Finance Correspondent

  • JeeYeon Park is a writer for CNBC.com. Follow her on Twitter: @JeeYeonParkCNBC

  • Rick Santelli joined CNBC Business News as an on-air editor in 1999, reporting live from the floor of the Chicago Board of Trade.

  • Senior Producer at CNBC's Breaking News Desk.