US stocks plunge as debt crisis deepens

US stocks plunged overnight as the country edged closer to defaulting on its debt and the economy showed more signs of deteriorating. Major indexes gave up all of their gains for the month. The Dow Jones industrial average fell 198.75 points, or 1.7 per cent, to 12,302.55, its biggest one-day drop since early June. It has fallen for four days straight. The S&P 500 fell 27.05 points, or two per cent, to 1,304.89. The technology-focused Nasdaq composite index fell 75.17 points, or 2.7 per cent, to 2,764.79, its worst day in five months. The Dow is headed for its worst weekly decline in nearly a year and is now 4 per cent below the 2011 high it reached on April 29. The S&P, which serves as a benchmark for most mutual funds, is also down 4 per cent from its recent peak. "As hours pass and the uncertainty builds, I think the market is starting to price in the potential that we might not have a solution by August 2," the deadline for raising the US debt limit, said Channing Smith, managing director of Capital Advisors. Start of sidebar. Skip to end of sidebar. End of sidebar. Return to start of sidebar. "Confidence in our political system is beginning to fade." Nearly half of the Dow's losses came in the last two hours of trading, after the Federal Reserve released a survey showing that the economy deteriorated in much of the country this summer. The economy slowed in seven of the Fed's 12 regions because of weak home sales and a slowdown in manufacturing. The declines were broad. More than 10 stocks fell for every one that rose on the New York Stock Exchange, and all but two of the 30 stocks in the Dow average fell. Small-company stocks fell more than the rest of the market. Small companies are more vulnerable to economic downturns since they make fewer products and usually have less cash on hand than large companies. With the deadline for a debt deal just six days away, investors are selling the stocks they consider to be the riskiest. The Russell 2000 index, which tracks smaller US companies, fell three per cent, almost twice as much as the Dow. Stocks have been falling overall since last Friday as an August 2 deadline for raising the US borrowing limit approaches. With no sign of a compromise between Republicans and Democrats in Washington, investors are becoming more fearful that the US's triple-A credit rating could be lowered or that the country might default on its debt. Either event would raise interest rates across the board and slow down the already weak US economy. The Dow is down three per cent this week. It is headed for its biggest weekly decline since August 2010. The S&P 500 is also down three per cent, and the Russell 2000 is down 4.9 per cent. The Dow and the S&P 500 are down about one per cent for the month. Some analysts fear that if the debt issue is not resolved stocks could fall as much as they did in the autumn of 2008, when the House of Representatives voted down a Bill to create the Troubled Asset Relief Program. The Dow plunged 778 points on September 29 after the Bill failed. Four days later, Congress passed the TARP Bill and President George W Bush quickly signed it into law. The Dow then jumped as much as 946 points in a week. A decline in orders for manufactured goods also pushed stocks lower. The Government said orders for durable goods fell 2.1 per cent in June because of a drop in demand for commercial aircraft, automobiles and heavy machinery. Manufacturing has been disrupted this year by parts shortages from Japan and higher energy prices. Earnings reports were mixed. Amazon.com Inc. rose 3.9 per cent after the online retailer reported that its earnings and revenue were far higher than analysts were expecting. Juniper Networks plunged 20.9 per cent, the most of any company in the S&P 500, after the computer networking equipment maker issued an earnings forecast that was lower than many analysts expected. Dunkin' Brands Group shot up 46.6 per cent to $27.85 on the company's first day on the Nasdaq market. The parent of Dunkin' Donuts and the Baskin-Robbins ice cream chain went public to help pay down its debt.