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* U.S. debt, budget talks stall * Dollar falls vs yen, euro * U.S. stocks end lower, futures drop * U.S. Treasuries prices fall; Fitch puts U.S. on credit watch By Caroline Valetkevitch NEW YORK, Oct 15 (Reuters) - U.S. stocks slid and short-term Treasury bill rates jumped on Tuesday as U.S. Senate negotiations stalled and prospects for an agreement soon to end the U.S. government's budget and debt impasse weakened. After Wall Street's closing bell, stock futures fell after Fitch Ratings placed the United States' 'AAA' credit rating on watch negative, citing the impasse in Washington. Earlier, the Treasury's weekly auctions of three- and six-month bills drew below-average demand as investors become increasingly concerned about the chances of a delayed or missed coupon payment. The value of bids received for the sales over those accepted was the lowest since 2009. The U.S. political standoff initially showed signs of giving way to a Senate deal to reopen federal agencies and prevent a damaging default on federal debt. The deadline to lift the U.S. debt ceiling is Oct. 17. Senate Majority Leader Harry Reid, a Democrat, and his Republican counterpart, Mitch McConnell, ended talks on Monday with Reid saying they had made "tremendous progress." But on Tuesday the Senate halted discussions on its own plan and waited for the Republican-controlled House of Representatives to come up with an alternative proposal before Thursday. "The odds that there won't be a deal over the next month are near zero, but there is some chance we won't see something by the 17th. If that happens ... we could easily correct 3-5 percent," said Jim McDonald, who helps oversee $803 billion as chief investment strategist at Chicago-based Northern Trust Global Investments. On Wall Street, the Dow Jones industrial average ended down 133.25 points, or 0.87 percent, at 15,168.01. The Standard & Poor's 500 Index was down 12.08 points, or 0.71 percent, at 1,698.06. The Nasdaq Composite Index was down 21.26 points, or 0.56 percent, at 3,794.01. MSCI's world equity index, which tracks shares in 45 countries, was down 0.2 percent, giving up early gains. In Europe, the FTSEurofirst 300 ended up 0.9 percent. In the U.S. Treasury bill market, yields on two-year Treasury notes issued nearly two years ago and maturing on Oct. 31 rose to just over 0.7 percent from near zero percent because prompt payment of the principal due on Oct. 31 was seen at risk due to the potential failure to raise the debt limit. . Until the $16.7 trillion statutory borrowing limit is actually increased, few investors are going to buy Treasury bills that come due in the latter half of October because of the possibility of a "technical default," analysts and traders said. The benchmark 10-year U.S. Treasury note was down 13/32, its yield at 2.7276 percent. FITCH WARNS Fitch surprised investors with its warning on Tuesday. It is the only one of the three major credit rating agencies to have a negative outlook on the U.S. sovereign credit. Standard & Poor's downgraded the rating to AA-plus in August of 2011 during the last debt ceiling impasse. "It is surprising because all the three major rating agencies have said that they have full confidence that a deal will be reached and the U.S. will pay its obligations," said Michael Woolfolk, senior currency strategist at BNY Mellon in New York. DOLLAR FALLS VS YEN The dollar fell to session lows against the yen as talks on raising the debt ceiling floundered. Senator Richard Durbin, the second-ranking Democrat in the Senate, said Senate Republican leader Mitch McConnell would have to wait for some signal on the next steps from House Speaker John Boehner before he takes any further moves. The dollar fell against the yen to 98.13 yen following Durbin's comments. Earlier, it hit a two-week high of 98.72 and was last at 98.41, down 0.2 percent. The dollar also dropped to the day's low versus the euro, which rose to session highs of $1.3531. The euro, however, was still down on the day, falling 0.3 percent to $1.3518. GOLD RISES Gold prices rose, reversing sharp losses posted earlier in the session, as the ongoing fiscal impasse in Washington triggered safe-haven buying. Spot gold was up 0.7 percent at $1,281.16 an ounce, off a high of $1,287.90 an ounce. The precious metal plunged to its lowest point since July 10 at $1,251.66 in early trade. Oil prices fell on both sides of the Atlantic as the hope for a deal to end the U.S. debt crisis steadily diminished. Brent crude futures settled down $1.14 at $109.90 a barrel in its third straight losing session. U.S. oil settled down $1.20 at $101.21 a barrel.