US STOCKS-Year's winners lead Wall St lower as default angst rises

Tue Oct 8, 2013 4:47pm EDT

* Profit-taking hits crowd favorites Facebook, LinkedIn, Netflix

* Volatility jumps on lack of progress in Washington

* Alcoa shares rise after the bell, following results

* Indexes down: Dow 1.1 pct, S&P 1.2 pct, Nasdaq 2 pct

By Rodrigo Campos

NEW YORK, Oct 8 (Reuters) - U.S. stocks slid on Tuesday as traders cashed in gains in some of the year's best performers amid little progress to end a political crisis in Washington that could affect the U.S. fiscal standing and economic recovery.

A gauge of Wall Street anxiety hit its highest level in more than three months as equity markets showed growing concern over a partial U.S. government shutdown and with only nine days left for Congress to raise the U.S. debt borrowing limit.

Facebook was among the biggest drags on the Nasdaq 100, down 6.7 percent to $47.14 on its worst day in more than a year. Shares of LinkedIn lost 6.1 percent to $222.73, and Netflix fell 5 percent to $302.32. Netflix is the top performer this year on the S&P 500, and Facebook is among the top performers on the Nasdaq 100.

"With the uncertainty surrounding Washington dominating trading, today was the day the momentum names finally were hit hard," said Ryan Detrick, senior technical strategist at Schaeffer's Investment Research in Cincinnati, Ohio.

"Could we finally see a move to the safer blue chips? If the Washington drama continues, that could be the play."

President Barack Obama turned up the political pressure on Republicans on Tuesday, saying he would be willing to negotiate on budget issues only after they agree to re-open the federal government and raise the debt limit with no conditions.

The possibility the government could default on its debt raised fears of potential global economic catastrophe, with foreign creditors and the International Monetary Fund's chief economist warning of the potential consequences.

"I think what could be said is if there was a problem lifting the debt ceiling, it could well be that what is now a recovery would turn into a recession or even worse," IMF chief economist Olivier Blanchard said. He added, however, such an event did not appear likely.

The Dow Jones industrial average fell 159.71 points or 1.07 percent, to 14,776.53, the S&P 500 lost 20.67 points or 1.23 percent, to 1,655.45 and the Nasdaq Composite dropped 75.544 points or 2 percent, to 3,694.833.

The S&P is down 4 percent from its record closing high three weeks ago.

The CBOE Volatility Index, a measure of investor anxiety, rose nearly 5 percent to close at its highest since June 20 as investors are now willing to pay more for protection against a sudden drop on the S&P 500.

The VIX, up 21.5 percent in the past two days, shot up 27 percent in the last week of 2012 partly on the political stalemate surrounding the 'fiscal cliff' negotiations, before falling 39 percent the first week of this year after a deal was reached in Washington.

On both the NYSE and Nasdaq, more than four issues fell for every one that rose.

McKesson Corp rose 3.2 percent to $133.72 after Dow Jones Newswires reported the company was in advanced talks to take over European drug distributor Celesio in a possible $5.1 billion deal.

Xerox Corp shares fell 2.5 percent to $10.14 after it said the U.S. Securities and Exchange Commission was investigating some accounting practices at Affiliated Computer Services, an IT outsourcing firm it bought in 2010.

After the closing bell, Alcoa shares rose 1.6 percent to $8.07 after the aluminum producer reported a third quarter profit. Shares of Yum Brands Inc, parent of KFC, were down 6.6 percent to $66.95 after the bell following results and lowered guidance.

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