US STOCKS-Wall St falls on second day of government shutdown

Wed Oct 2, 2013 10:06am EDT

* Government shutdown enters second day; no end in sight

* ADP report shows fewer jobs added in Sept than expected

* Monsanto drops after fourth-quarter loss, lower outlook

* Indexes down: Dow 0.7 pct, S&P 0.6 pct, Nasdaq 0.4 pct

By Ryan Vlastelica

NEW YORK, Oct 2 (Reuters) - U.S. stocks fell on Wednesday as a partial government shutdown in Washington entered a second day, adding to concerns over how soon a political compromise would be reached.

There were few signs that Congress was making progress in agreeing on a spending bill that would reopen operations. The Democratic-led U.S. Senate voted Tuesday to kill Republicans' latest attempts to modify an emergency funding bill, and sent a "clean" measure back to the House of Representatives that would extend funding for government agencies until Nov. 15.

Up to 1 million government workers remained on unpaid leave Wednesday as a result of the closure, with a fight over President Barack Obama's healthcare law at the center of the impasse.

Market participants are also watching the situation for an indication of how an impending debate on the debt ceiling might play out. That issue is considered far more important for the economy, as it could result in an unprecedented debt default if not passed.

U.S. Treasury Secretary Jack Lew said late Tuesday the Treasury had started using its final tools to push back the date of when the government will run out of legal borrowing authority.

"We hope they can resolve it and also make progress on negotiating the debt ceiling, but no one knows for sure. So the market is left to swing from bouts of optimism like we saw yesterday, to bouts of pessimism today," said Bruce McCain, chief investment strategist at Key Private Bank in Cleveland, Ohio.

The shutdown's impact on economic growth and market volatility will likely increase the longer it continues.

McCain estimated that if the shutdown were to last 21 days, as the previous one did, "that would trim a quarter of the 2.5 percent annualized growth rate we saw last quarter. That isn't an insurmountable hurdle, but it would hurt."

All ten S&P 500 sectors were lower, with material stocks the weakest, off 0.8 percent. Chemical maker OM Group fell 4.1 percent to $32.68 while Alcoa Inc lost 2.2 percent to $7.99. Alcoa was also pressured by a downgrade by Deutsche Bank.

The Dow Jones industrial average was down 105.77 points, or 0.70 percent, at 15,085.93. The Standard & Poor's 500 Index was down 9.75 points, or 0.58 percent, at 1,685.25. The Nasdaq Composite Index was down 15.31 points, or 0.40 percent, at 3,802.67.

Equities have been volatile recently, with the CBOE Volatility index spiking more than 25 percent over the past two weeks. However, the S&P has found support at its 50-day moving average of 1,679.78.

Wall Street has managed to avoid steep declines during similar federal government closures in the past. During a shutdown from Dec. 15, 1995 to Jan. 6, 1996, the S&P 500 added 0.1 percent. During the Nov. 13 to Nov. 19, 1995, shutdown, the benchmark index rose 1.3 percent.

Data released Wednesday by a payrolls processor showed U.S. private employers added 166,000 jobs in September, below expectations for 180,000 jobs. Investors may place more weight than usual on the report as government data will not be released during the shutdown. Friday's key payroll report will be delayed if no deal is reached by then.

Monsanto Co reported a fourth-quarter loss that was wider than expected, and offered a reduced outlook for 2014 even as it said it was positioned for strong growth next year. Shares fell 2.7 percent to $102.21.

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