Stocks nosedive amid gridlock in Washington debt talks
Stocks plunge Monday as budget talks in Washington hit gridlock. The Dow average fell more than 300 points, with all 30 stocks losing value.
NEW YORK — Congress' latest failure to resolve the federal budget gridlock sent stocks plunging Monday. The Dow Jones industrial average fell more than 300 points.
A 12-member bipartisan panel was supposed to agree on at least $1.2 trillion in deficit reductions by Wednesday. The panel appeared ready to admit failure on Monday.
The group's inability to reach a deal might trigger massive spending cuts over 10 years, starting in 2013. If lawmakers try to prevent those cuts, analysts say it could lead to another downgrade of the U.S. government's credit rating.
Uncertainty about federal spending hurts the fragile recovery because private-sector growth is so slow.
The lack of an agreement also makes less likely a renewal of the payroll tax cut and extended unemployment insurance benefits. Both expire at the end of December. Economists say that will further drag on the recovery.
Most investors expected the committee to keep working toward a deal until just before its Wednesday deadline, said Robert Robis, head of fixed income macro strategies at ING Investment Management. What's surprising is that the committee would quit early Robis, said.
"They're essentially giving up," he said.
The declines were broad. Energy and technology stocks lost the most. All 30 stocks in the Dow average fell, led by Boeing Co. with a 4.7 percent decline. Only 10 stocks in the S&P 500 were trading higher.
The dollar and U.S. Treasury prices rose as investors moved money into assets seen as safe. The yield on the benchmark 10-year Treasury note fell to 1.97 percent. It traded at 2.01 percent late Friday.
The Dow Jones industrial average fell 293 points, or 2.5 percent, to 11,503 at 11:20 a.m. Eastern time. The Standard & Poor's 500 index dropped 28, or 2.3 percent, to 1,187. The Nasdaq composite index declined 63, or 2.5 percent, to 2,509.
The Dow turned negative for the year, the first time that's happened in a month. It had rallied in October as the U.S. economy appeared to recover from a very slow summer. The S&P is down 5.6 percent for the year.
The rating agency Moody's warned Monday that France's top credit rating remains under pressure as worries over Europe's debt crisis have pushed the government's borrowing costs higher. In weekly note, a Moody's Investors Service analyst said that if high borrowing costs persist it would have "negative credit implications" for France's triple-A credit rating.
Gilead Sciences Inc. plunged 12 percent, the most in the S&P 500 index, after announcing plans to buy the drug developer Pharmasset Inc. for $11 billion. Pharmasset, which has an experimental hepatitis C drug in late-stage clinical trials, jumped 85 percent.
Alleghany Corp. fell 7 percent after the property and casualty insurer said it had agreed to buy the reinsurance company Transatlantic Holdings Inc. for $3.4 billion. Transatlantic edged up 1 percent.
The S&P 500 lost 3.8 percent last week, its worst weekly drop since mid-September. The steepest falls came Wednesday and Thursday after rating agency Fitch warned that Europe's debt crisis could hit the largest U.S. banks. The S&P 500 is now down 5.2 percent for the year.