Stocks dip as European bank worries continue; traders await reading on consumer confidence

Stocks drop before confidence report

NEW YORK — Stocks dropped Thursday as traders remained cautious about the health of European banks.

The Dow Jones industrial average fell 36 points in early morning trading.

European markets fell sharply on continued worries about how banks on the continent will be able to handle mounting government debt. The bank worries overshadowed another upbeat report on Germany’s economy. Consumer confidence in Germany rose as more people are optimistic about job growth.

Growth in consumer confidence in Germany comes on the same day where a key report on consumer confidence in the U.S. is scheduled for release. The Conference Board is expected to say U.S. consumer confidence dipped slightly this month compared with August.

Economists polled by Thomson Reuters forecast the consumer confidence index dipped to 52.5 from 53.5 last month. It takes a reading of 90 to indicate a strong, healthy economy.

Confidence remains low in the U.S. as unemployment remains high and economic growth is tepid. But investors have been able to drive stocks sharply higher throughout September because economic data indicates the country is strong enough to avoid falling back into recession.

The Dow Jones industrial average has jumped 8 percent this month, putting it on pace for its best September since 1939.

In corporate news, dealmaking continued for a second day. Drug developer Endo Pharmaceuticals Holdings will buy Qualitest Pharmaceuticals for $1.2 billion. A wave of dealmaking Monday wasn’t enough to keep stocks from sliding Monday as traders pocketed some profits and some concerns remained about the health of Europe’s banks.

Research in Motion Ltd. announced it’s rolling out a competitor to Apple Inc.’s iPad, called the PlayBook. The PlayBook is set to launch in early 2011 in the U.S.

Drugstore chain Walgreen Co.’s profit easily topped forecasts, sending its shares sharply higher.

The Dow fell 35.64, or 0.3 percent, to 10,775.79 early morning trading.

The Standard & Poor’s 500 index fell 3.97, or 0.4 percent, to 1,138.19, while the Nasdaq composite index fell 12.31, or 0.5 percent, to 2,357.46.