* Obama shows flexibility on short-term debt limit hike
* Talisman Energy climbs on Icahn stake
* PHH exploring unit split - sources
* J.C. Penney jumps on turnaround update
* Indexes off: Dow 0.27 pct, S&P 0.22 pct, Nasdaq 0.19 pct
By Chuck Mikolajczak
NEW YORK, Oct 8 U.S. stocks dipped slightly on
Tuesday despite signs of slight progress to resolve the fiscal
standoff in Washington, although no agreement appeared to be
With the partial U.S. government shutdown in its second week
and only nine days left for Congress to raise the U.S. debt
ceiling, President Barack Obama said he would accept a
short-term increase to avoid a default.
A Senate aide said Republican Senator Rob Portman, who is
influential on budget matters, floated a plan to cut federal
spending and reform the U.S. tax code as part of a broader deal
to reopen shuttered government agencies and raise the debt
"In this type of environment, pre-earnings season where it
is headline driven by a market bludgeoned with continued sound
bites about the shutdown, it's not a surprise to see markets
make these smaller moves," said Sal Arnuk, co-manager of trading
at Themis Trading in Chatham, New Jersey.
"What is really at stake is a tug-of-war going on because
investors don't know if they want to avoid getting caught up in
a crisis-driven selloff versus missing a resolution rally."
The shutdown has led to few economic data releases, leaving
investors to focus on the earnings-reporting season. However,
earnings are more likely to affect individual companies than
drive marketwide moves.
After Tuesday's market close, former Dow component Alcoa Inc
will report earnings as will KFC parent company Yum!
The longer the government shutdown continues, the greater
the damage to the economy, according to analysts, increasing the
probability the Federal Reserve will leave its stimulus measures
The Dow Jones industrial average fell 39.96 points or
0.27 percent, to 14,896.28, the S&P 500 lost 3.68 points
or 0.22 percent, to 1,672.44 and the Nasdaq Composite
dropped 7.077 points or 0.19 percent, to 3,763.3.
McKesson shares rose 5.7 percent to $136.99 as the
best performer on the S&P 500 after Dow Jones Newswires reported
the company was in advanced talks to take over Celesio
in a possible 3.74 billion euro ($5.08 billion) deal.
PHH Corp is exploring splitting up its mortgage and
auto fleet leasing businesses and selling each of the units,
three people familiar with the situation told Reuters on Monday.
Its shares fell 2.5 percent to $25.26.
J.C. Penney Co Inc rose 2.5 percent to $7.90 after
the struggling retailer reported a smaller decline in same-store
sales for September compared with August and said it was seeing
positive signs in many areas of its business.
U.S.-listed shares of Talisman Energy Inc advanced 2
percent to $13 after activist investor Carl Icahn said he had
purchased about 61 million shares of the underperforming
Canadian oil producer and may seek a seat on the company's