US STOCKS-Debt standoff drags down stocks, drives wary mood

Mon Jul 25, 2011 4:32pm EDT

 * Volatility index jumps 9.6 pct; trading volume light
 * Research in Motion falls, says to cut work force
 * Indexes off: Dow 0.7 pct, S&P 0.6 pct, Nasdaq 0.6 pct
 * For up-to-the-minute market news see [STXNEWS/US]
  (Updates to close)
 By Caroline Valetkevitch
 NEW YORK, July 25 (Reuters) - U.S. stocks dipped on Monday
as lawmakers remained in a standoff over raising the debt
ceiling to avoid default, but investors were convinced a
compromise will be reached before next week's critical
 Trading volume, however, was light even for a seasonally
quiet period, suggesting investors were holding to the
sidelines. In another sign of negative sentiment, declining
stocks far outpaced advancers despite the day's moderate
 Lawmakers are facing an Aug. 2 deadline to raise the $14.3
trillion debt ceiling to avert a U.S. default.
 "If you listen to all of the rhetoric and read all of the
print, Aug. 2 has the potential of being one of the worst days
ever, if the debt ceiling isn't raised," said Hank Smith, chief
investment officer at Haverford Trust Co. in Philadelphia.
 But the market is not reacting as if that's going to
happen, he said. "Politicians are being politicians...but when
they get to the end of the cliff, they're not going to jump.
They will raise the debt ceiling."
 A deal remained elusive in Washington as President Barack
Obama's Democrats and their Republican rivals pushed for
separate budget proposals in Congress, increasing the threat of
a ratings downgrade and default that could sow chaos in global
markets. For details, see  [ID:nN1E76N0CA] A two-stage
Republican plan would call for $1.2 trillion in cuts.
 Investor anxiety remained high, reflected in the CBOE
Volatility Index .VIX, which jumped 10.5 percent, its biggest
percentage increase in two weeks.
 The Dow Jones industrial average .DJI was down 88.36
points, or 0.70 percent, at 12,592.80. The Standard & Poor's
500 Index .SPX was down 7.59 points, or 0.56 percent, at
1,337.43. The Nasdaq Composite Index .IXIC was down 16.03
points, or 0.56 percent, at 2,842.80.
 Among the weakest sectors were health care .GSPA,
telecommunications .GSPL and consumer staples .GSPS,
erasing some of last week's market gains notched on
second-quarter earnings that were mostly stronger than
expected. The S&P index of each sector was down at least 1
 On the New York Stock Exchange, decliners outweighed
advancers by about 4-to-1, while Nasdaq losers beat winners by
about 10-to-3.
 The political jousting in Washington pushed gold prices to
record highs as the fear of a default raised the appeal of
bullion versus the greenback. The dollar fell to a record low
against the Swiss franc, a safe-haven currency.
 "There is concern about the implication about what our own
debt rating will be as we air out this dirty laundry to try to
come to a resolution," said Kevin Caron, market strategist at
Stifel, Nicolaus & Co in Florham Park, New Jersey.
 Strong earnings reports have offset worries about the debt
debate, helping stock indexes post gains last week. Of the 154
S&P 500 companies that have reported earnings so far, 75
percent have beaten analyst expectations, according to Thomson
Reuters data.
 But among Monday's results, Kimberly-Clark Corp (KMB.N)
declined 2.1 percent to $66.48 after it said 2011 profits may
be at the low end of its forecast.
 Another disappointment came from hospital operator HCA
Holdings Inc (HCA.N), which reported quarterly profit and
revenue that were short of expectations, spooking investors who
feared it indicated the start of a trend. [ID:nN1E76O075] HC
shares dropped 19.2 percent to $27.97.
 Other big decliners for the day included U.S.-listed shares
of Research In Motion Ltd RIM.TORIMM.O , which were off 4.4
percent at $26.67 after the BlackBerry maker decided to cut
about 11 percent of its work force as it struggles to compete
against Apple Inc (AAPL.O) and Google Inc (GOOG.O).
 Trading volume on the New York Stock Exchange, NYSE Amex
and Nasdaq was at 5.89 billion, well below the daily average of
7.49 billion.
 (Reporting by Caroline Valetkevitch; additional reporting by
Ashley Lau; Editing by Leslie Adler)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.