NEW YORK: Investors sold stocks across the board Thursday as a U.S. government shutdown dragged into a third day and the U.S. inched toward a deadline on raising the nation’s borrowing limit.
The Dow Jones industrial average fell close to 200 points by late morning as Republicans and Democrats appeared no closer to ending the budget impasse. In a speech President Barack Obama said there was only one way out of the shutdown: “Congress has to pass a budget that funds our government with no partisan strings attached.”
Investors also got some disappointing economic news on Thursday.
The Institute of Supply Management said that sales fell sharply, new orders dipped and hiring weakened at U.S. service companies. The report covers industries including retail, construction, health care and financial services.
The stock market losses on Thursday marked an acceleration of gradual declines over the last two weeks. Stocks have fallen eight of the last 10 days as investors anticipated that negotiations over the federal budget would fail. If the shutdown persists, the weak economic recovery could falter.
The U.S. Treasury Department said Thursday that the economy could plunge into a downturn worse than the Great Recession if Congress failed to raise the debt ceiling and the country defaulted on its debt obligations.
The U.S. missing a debt payment could cause credit markets to freeze, the value of the dollar to plummet and U.S. interest rates to skyrocket, according to the Treasury report.
A default “would be so catastrophic and such a self-inflicted wound that you can’t imagine we would let it happen,” said Maury Fertig, chief investment officer of Relative Value Partners. “But the fact is that every day we get closer to it the possibility increases, even though it’s remote.”
The Dow fell 136.66 points, or 0.9 percent, to 14,996.48, its biggest decline since Sept. 20. It was down as much as 186 earlier.
The Standard & Poor’s 500 index dropped 15.21 points, or 0.9 percent, to 1,678.66. The Nasdaq composite fell 40.68 points, or 1.1 percent, to 3,774.34.
Stocks pared some of their losses in afternoon trading after the New York Times reported that Republican House Speaker John Boehner had told his party that he wouldn’t let the nation default.
Defense companies, which rely on government contracts for much of their revenue, fell. Lockheed Martin dropped $2.25, or 1.8 percent, to $122.80. The stock has fallen 5.4 percent in the last five trading days.
Despite the slump during the last two weeks, stocks are still close to the record levels they reached last month. The S&P 500 is up 17 percent so far this year, having climbed as much as 21 percent by Sept. 18.