October 8, 2013 / 5:31 PM / 4 years ago

US STOCKS-Tech stocks slammed, volatility spikes on U.S. stalemate

* Profit-taking hits 2013’s winners, including Facebook, TripAdvisor

* Lack of progress in Washington boosts volatility

* Alcoa, Yum Brands report after close of trading

* Indexes down: Dow 0.6 pct, S&P 0.8 pct, Nasdaq 1.7 pct

By Julia Edwards

NEW YORK, Oct 8 (Reuters) - U.S. stocks fell on Tuesday, led by tech stocks that have made some of the biggest gains this year, as the lack of progress in ending the fiscal crisis in Washington prompted more selling.

As the partial U.S. government shutdown continued for a second week and with only nine days left for Congress to raise the U.S. debt borrowing limit, equity markets that have taken the political battle in stride showed growing concern.

The technology sector was the biggest loser on the S&P 500, with investors targeting stocks that have outperformed throughout the year and even held up well as the broader market has come under modest pressure in the last couple of weeks.

Facebook was the biggest drag on the Nasdaq 100, down 5.9 percent to $47.50. Shares of TripAdvisor lost 5.7 percent to $71.51 a share, and Netflix fell 4.9 percent to $302.30. Both TripAdvisor and Netflix are among the top performers this year on the S&P 500, and Facebook is among the top performers on the Nasdaq 100.

“All of the sudden, you’ve got these question marks coming in from earnings reports and the government shutdown and you’ve got these portfolio managers saying, ‘What is left here for me to keep my neck out? Why not take some profit?'” said Daniel Morgan, senior portfolio manager at Synovus Trust Company in Atlanta.

The CBOE Volatility Index, a measure of investor anxiety, rose to 20.17, the highest since June 24 and well above its 14-day moving average of 15.79. A level above 20 is generally associated with increasing concern about the near-term direction of the market.

House Republican leaders announced a proposal to establish a 20-member bipartisan deficit-reduction committee that would be tasked with finding a budget solution to end the government shutdown

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 in place.

President Barack Obama refused House Speaker John Boehner’s public request for a meeting to negotiate the terms of ending the partial government shutdown and raising the debt ceiling.

The Dow Jones industrial average was down 87.66 points, or 0.59 percent, at 14,848.58. The Standard & Poor’s 500 Index was down 12.86 points, or 0.77 percent, at 1,663.26. The Nasdaq Composite Index was down 62.52 points, or 1.66 percent, at 3,707.85.

After Tuesday’s market close, former Dow component Alcoa Inc will report earnings, as will KFC parent company Yum! Brands Inc.

McKesson Corp rose 3.7 percent to $134.44 as a top performer on the S&P 500 after Dow Jones Newswires reported the company was in advanced talks to take over Celesio in a possible $5.08 billion deal.

J.C. Penney Co Inc rose 3.1 percent to $7.95 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.

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