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Stocks fall on third day of US government shutdown

Investors sold stocks across the board Thursday as a US government shutdown dragged into a third day and a survey showed disappointing growth at US service industries.

business Updated: Oct 04, 2013 01:27 IST

Investors sold stocks across the board Thursday as a US government shutdown dragged into a third day and a survey showed disappointing growth at US service industries.

Stocks opened lower and sank to their lowest level in nearly a month by late morning. Republicans and Democrats appeared no closer to ending the budget impasse and a high-risk clash over raising the government's borrowing authority.

In speech President Barack Obama said there was only one way out of the shutdown: "Congress has to pass a budget that funds our government with no partisan strings attached."

The Institute of Supply Management reported that sales fell sharply, new orders dipped and hiring weakened at US service companies, which cover everything outside manufacturing, including retail, construction, health care and financial services.

Thursday's stock market losses marked a slight acceleration of gradual declines over the last two weeks. Stocks have logged modest declines on eight of the last 10 days as investors anticipated that negotiations over the federal budget would fail, forcing a partial shutdown and worker furloughs as of October 1.

If the shutdown persisted, they worried, the weak economic recovery could slow.

In Washington, the political gridlock showed no signs of ending. Republicans in the House of Representatives, pushed by a core of tea party conservatives, are insisting that Obama accept changes to the health care law he pushed through three years ago as part of a budget bill. Obama refuses to consider any deal linking the health care law to routine legislation needed to extend government funding.

The Standard & Poor's 500 index dropped 13 points, or 0.8 percent, to 1,680 as of 3:05 pm (1905 GMT), its lowest point since September 9.

The index had fallen by as much as 23 points but pared some of its loss after the New York Times reported that the Republican House Speaker John Boehner had told his party that wouldn't let the nation default. Stocks also dipped briefly in afternoon trading on reports that shots had been fired at the Capitol.

Lawmakers must periodically raise the nation's borrowing limit to keep U.S. funds flowing, but the once-routine matter has now become a bargaining chip in battles over the federal budget deficit. Failure to raise the limit could cause the U.S. to miss payments on its debt.

The U.S. Treasury Department said Thursday that the economy could plunge into a downturn worse than the Great Recession if Congress failed to raise the debt ceiling and the country defaulted on its debt obligations.

A steeper slide in the stock market would likely intensify the pressure on lawmakers, forcing them to broker a deal to end the budget fight, said Stacey Nutt, chief investment officer at ClariVest Asset Management.

"The politicians have a vested interest in the market not going down," said Nutt. "The worst thing for them would be for the market to get destroyed by the lack of compromise."

Despite the slump during the last two weeks, stocks are still close to the record levels they reached last month. The S&P 500 is up 17 percent so far this year, having climbed as much as 21 percent by Sept. 18.

A four-year bull-market for stocks has been sustained by a recovery in the housing market, improving hiring and resilient corporate earnings. Unprecedented economic stimulus from the Federal Reserve has also supported the market.

"Investors have to look beyond all of this dysfunction in Washington to see what is a reasonably positive investment landscape beyond it," said Cam Albright, director of asset allocation for Wilmington Trust Investment Advisors. "Ultimately, you are going to have a resolution to it, but it's going to get a lot more difficult and a lot trickier before it gets any easier."

The dollar dropped against the euro and the Japanese yen, continuing a recent slide. The dollar index, which measures the U.S. currency against a group of other major currencies, has declined for five days.

The Labor Department said Thursday it will not release the highly anticipated September jobs report on Friday because the government remains shuttered.
In government bond trading, the yield on the 10-year Treasury note fell to 2.61 percent from 2.62 percent Wednesday.