U.S. stocks drop on default concern amid debt-limit deadlock

U.S. stocks fell, with the Dow Jones Industrial Average poised for the lowest close in a month, as lawmakers remained deadlocked over extending the nation’s debt limit to avoid a default.

Bank of America Corp. and Wells Fargo & Co. paced declines among banks, slipping at least 1%. Alcoa Inc., which is scheduled to release third-quarter results tomorrow, lost 1%. Cooper Tire & Rubber Co. sank 13% as Apollo Tyres Ltd. is seeking to cut its $2.5 billion offer to buy the U.S. company. Apple Inc. gained 1.6% after Jefferies Group LLC upgraded the stock.

The Standard & Poor’s 500 Index fell 0.4% to 1,683.70 at 3:04 p.m. in New York. The Dow declined 78.58 points, or 0.5%, to 14,994. Trading in S&P 500 stocks was 17% below the 30-day average during this time of day.

“The volume is very light so I do think investors are trying to feel their way through this,” Walter Todd, chief investment officer at Greenwood Capital Inc., said in a phone interview from Greenwood, South Carolina. He helps manage $950 million. “Each day that it goes by without any type of solution or any hope of a solution, the market gets more and more concerned about what the ultimate outcome is.”

Speaker John Boehner said yesterday in an interview on ABC’s “This Week” that the House of Representatives can’t pass a debt-ceiling increase without packaging it with other provisions. Boehner said the country could default if President Barack Obama doesn’t negotiate. Obama today challenged congressional Republicans to raise the U.S. debt limit by next week and said he’s willing to negotiate on fiscal terms once that is done and government funding is restored.

Pay Bills

Without an increase to the debt limit, the U.S. will exhaust its borrowing authority on Oct. 17 and would run out of funds to pay all of its bills sometime between Oct. 22 and Oct. 31, according to the Congressional Budget Office. Senate Democrats could introduce legislation as soon as today that gives Obama the authority to raise the debt ceiling unless two- thirds of Congress disapproves, according to a Senate Democratic aide.

S&P stripped the U.S. of its AAA credit rating in August 2011 amid a stalemate between Obama and Congress over whether to raise the debt ceiling. The S&P 500 fell more than 11% in three days.

Moody’s Investors Service said it sees a “very low” chance the U.S. will default on its debt payments. The impact of the partial government shutdown on the economy may not be particularly damaging in the short term, and the effect would be seen gradually over time if it was an extended one, Chief Executive Officer Ray McDaniel said in a Bloomberg Television interview in Bali on Oct. 5.

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