* Investors fear debt limit decision will be tied to budget
* S&P 500 on track for ninth loss in past 11 sessions
* Growth in the U.S. service sector slows last month
* Indexes down: Dow 1.2 pct, S&P 1.4 pct, Nasdaq 1.6 pct
By Julia Edwards
NEW YORK, Oct 3 U.S. stocks fell on Thursday as
a partial U.S. government shutdown entered its third day, with
investors growing concerned that the budget stalemate will
become intertwined with a coming deadline to raise the debt
Weaker-than-expected growth in the U.S. service sector also
added to the negative tone. The government closure has had a
limited effect on markets thus far, but the impact is gathering
a bit of strength as concerns over raising the U.S. borrowing
authority have risen.
The three major indexes fell more than 1 percent.
The situation in Washington has pressured equities, with the
S&P 500 having dropped in nine of the past 11 sessions.
All 10 S&P sectors fell, with industrial names among
the hardest hit. Boeing Co fell 2.5 percent to $115.33.
President Barack Obama met with Republican and Democratic
leaders in Congress late Wednesday to try to break the budget
deadlock, but no breakthrough seems to be in sight. Markets took
a turn for the worse after Obama, in a speech, reiterated that
he would not meet Republican demands in exchange for operating
The Treasury has said the United States will exhaust its
borrowing authority no later than Oct. 17. If no deal is reached
on raising the debt ceiling, the United States could default on
"What's happened in Washington? Nothing. When people are
uncertain about what's going to happen, they sell first and ask
questions later," said Michael James, managing director of
equity trading at Wedbush Securities in Los Angeles.
"I think the feeling on Tuesday was, 'OK the government's
shut down, but they're going to do soemthing in a day or two.'
Now we're in day three, and people are getting both a little
concerned and annoyed."
The Dow Jones industrial average was down 182.12
points, or 1.20 percent, at 14,951.02. The Standard & Poor's 500
Index was down 22.87 points, or 1.35 percent, at
1,671.00. The Nasdaq Composite Index was down 60.13
points, or 1.58 percent, at 3,754.89
The CBOE Volatility Index, the market's favored
indicator of Wall Street anxiety, rose 11 percent to 18.44.
The S&P 500 broke below its 50-day moving average of
1,679.88. The moving average represents a measure of the
near-term trend in the market. Once the index falls convincingly
below the 50-day moving average, investors often will sell
Goldman Sachs estimated on Wednesday a short-term shutdown
would slow U.S. economic growth by about 0.2 percentage point,
while a weeks-long disruption could shave 0.4 percentage point
off growth, as furloughed workers trim personal spending.
The weakest sectors Thursday were utilities and industrials.
Utilities are generally heavy debt issuers, and Warren West,
principal at Greentree Brokerage Services in Philadelphia, noted
that their borrowing costs are vulnerable if rates rise.
"When you think that people on Capitol Hill might just lose
their minds and push us over the cliff, are very
vulnerable," said West.
"If there's a crisis in the debt markets because we weren't
able to get a resolution on the debt ceiling, our borrowing
costs are going to go up dramatically."
The utilities sector was down 1.4 percent. Exelon
Corp lost 1.9 percent.
Growth in the U.S. service sector cooled last month to 54.4
after approaching an eight-year high of 58.6 in August,
according to the Institute for Supply Management's September
Tesla Motors Co shares fell 4.38 percent to $172.84
after an automotive blog published images of a Model S electric
sedan in flames after an accident.