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Dow plummets as shutdown looms

8:42 AM, Sep 30, 2013   |    comments
The Wall Street sign near the front of the New York Stock Exchange. (Photo: Stan Honda, AFP/Getty)
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U.S. stocks opened sharply lower Monday on Wall Street as investors braced for a potential government shutdown.

The Dow Jones industrial average was down more than 170 points, or 1.1% shortly after the opening bell. The benchmark Standard & Poor's 500 index was off 1% and the Nasdaq composite was down 1.2%.

Markets are under pressure as a budget battle in Washington threatens the first government shutdown in 17 years. Congress has until a midnight deadline to avert the crisis.

Despite the fact that Wall Street has gone through prior budget battles in recent years, the chronic inability of lawmakers to compromise on fiscal matters and their tendency to squabble right up to key deadlines has investors on edge once again. It is also causing volatility to spike.

"The rancorous debate in Washington does little to generate investor confidence," notes Tobias Levkovich, an investment strategist at Citigroup.

The political dysfunction coincides with the last trading day of the third quarter and ahead of a spate of market-moving headlines in coming days and weeks, including soon-to-be-released third-quarter corporate earnings reports, another fight mid-month in the nation's capitol over raising the debt ceiling, and the Federal Reserve's next policy meeting near the end of October.

In addition to the hit to investor confidence if a government shut down occurs, a shutdown would cause many government workers to be furloughed, which will likely weigh on economic growth and hurt corporate profitability in the final three months of the year, warns Sam Stovall, chief equity strategist at S&P Capital IQ.

Stovall cites the "continued uncertainties from Washington" as a "headwind" for stocks.

The U.S. government will reach its borrowing limit, or debt ceiling, on Tuesday. If Congress doesn't raise that limit, the government won't be able to pay all its bills and some 800,000 of the 2.1 million federal employees will not go to work.

On Friday, the Dow fell 0.5%, the S&P 500 dropped 0.4% and the Nasdaq lost 0.1%.

Global benchmarks were showing signs of jitters Monday ahead of the start to regular U.S. trading hours. Japan's Nikkei 225 index fell 2.1% to 14,455.80 and Hong Kong's Hang Seng index dropped 1.5% to 22,859.86.

Markets in Europe were further exercised by renewed political crisis in Italy, where former prime minister Silvio Berlusconi said over the weekend that he will push for snap elections. A confidence vote on Prime Minister Enrico Letta's administration is due Tuesday. Italy's FTSE MIB index was down over 2%. Benchmarks across Europe also fell, as Britain's FTSE 100 dropped 0.8% and Germany's DAX index fell 1.1%. France's CAC 40 was down 1.3%.

Benchmark oil for November delivery fell $1.21 to $101.64 per barrel in electronic trading on the New York Mercantile Exchange.

Contributing: Associated Press

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