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Stocks sink as government heads toward shutdown

Oct. 01, 2013 @ 12:00 AM

NEW YORK — Stocks sank Monday as Wall Street worried that a budget fight in Washington could lead to an event far worse for the economy— a failure to raise the nation's borrowing limit.

Investors pulled back from stocks as a budget fight in Congress threatened to push the government into a partial shutdown for the first time in 17 years Lawmakers have until midnight Tuesday to reach a budget deal that would keep government in full operation.

There is a simple reason why the budget battle — and, more importantly, an upcoming fight over the debt ceiling — are so crucial: the credit of the United States is the bedrock that nearly every other investment is built upon, largely due to the assumption that the nation will always pay its debts.

"The concern is government has become so polarized that if it cannot pass (a budget), there's a greater chance that the debt ceiling battle will go to the brink or possibly lead to a default," said Alec Young, global equity strategist with S&P Capital IQ.

The Dow Jones industrial average fell 129 points, or 0.8 percent, to close at 15,129.67. The Standard & Poor's 500 slid 10 points, or 0.6 percent, to 1,681.55 and the Nasdaq composite dropped 10 points, or 0.3 percent, to 3,771.48.

Monday's decline adds to what has been eventful September for investors. Stocks hit an all-time on Sept. 18 after the Federal Reserve voted to keep up its economic stimulus program. But that enthusiasm vanished as Wall Street began to worry that the political bickering between Democrats and Republicans would lead to a government shutdown and crisis over the debt ceiling.

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