* Failure of Boehner's bill suggests compromise difficult
* Banking shares tumble; Citigroup and BofA shares drop
* Research In Motion shares slide more than 18 percent
* Indexes down: Dow 1.1 pct, S&P 500 1.2 pct, Nasdaq 1.3 pct
By Leah Schnurr
NEW YORK, Dec 21 U.S. stocks tumbled more than 1
percent on Friday after a Republican proposal for averting the
"fiscal cliff" failed to pass, diminishing hopes that a deal
would be reached soon in Washington.
Trading was volatile as investors reckoned a fiscal
agreement between the White House and Republicans before the end
of the year was unlikely. Lower volume ahead of the Christmas
and New Year holidays exaggerated market swings further, and the
CBOE Volatility Index, or VIX, was up 6.5 percent.
Late on Thursday, Republican House Speaker John Boehner
failed to muster enough votes from his party to pass a tax bill,
dubbed "Plan B," to avert the so-called fiscal cliff, $600
billion of tax hikes and spending cuts due to start in January.
If U.S. lawmakers don't agree soon on a budget that avoids the
cliff, the U.S. economy could tip into recession.
"The failure with Plan B was disappointing, if not terribly
surprising, but now there's a real lack of clarity about what
will happen and markets hate that," said Mike Hennessy, managing
director of investments for Morgan Creek in Chapel Hill, North
The lack of support for Plan B, which called for tax
increases on those who earn $1 million or more a year, suggested
it would be difficult to get Republican support for the more
expansive tax increases that President Barack Obama has urged.
That, in turn, reduces the possibility of an agreement between
the White House and Republicans before the end of the year.
Earlier on Friday, Boehner said congressional leaders and
Obama must try to move on and work together.
While Friday's stock market slide reflected investors'
anxiety, it wasn't a large enough drop to suggest they believed
a deal would be reached too late to avoid damage to the economy,
said Mark Lehmann, president of JMP Securities, in San
"You could have easily woken up today and seen the market
down 300 or 400 points, and everyone would have said, 'That's
telling you this is really dire,'" Lehmann said.
"I think if you get into mid-January and (the talks) keep
going like this, you get worried, but I don't think we're going
to get there."
Banking shares, which outperform in times of economic
expansion and have led the market on signs of progress with
resolving the fiscal impasse, led declines. Citigroup Inc
fell 1.8 percent to $39.44, while Bank of America slid
2.4 percent to $11.24. The KBW Banks index lost 1.4
The Dow Jones industrial average dropped 147.89
points, or 1.11 percent, to 13,163.83. The Standard & Poor's 500
Index fell 17.08 points, or 1.18 percent, to 1,426.61.
The Nasdaq Composite Index lost 39.90 points, or 1.31
percent, to 3,010.49.
Even with the declines, the S&P 500 is up nearly 1 percent
for the week and about 13 percent for the year, though
uncertainty over the cliff may prompt many traders to lock in
gains as the year draws to a close.
The day's round of data indicated the economy was
surprisingly resilient in November; consumer spending rose by
the most in three years and a gauge of business investment
But separate data showed consumer sentiment slumped in
December. The S&P Retail Index fell 1.3 percent.
U.S.-listed shares of Research in Motion sank 19.8
percent to $11.32 after the Canadian company, which makes the
BlackBerry, reported its first-ever decline in its subscriber
numbers on Thursday. A new fee structure for its high-margin
services segment also concerned investors.
Herbalife dropped for an eighth day in a row.
Investor Bill Ackman on Thursday ramped up his campaign against
the company. Herbalife skidded 17.8 percent to $27.72 and has
shed more than 35 percent this week.