Closing Bell: Stocks Sink Over Worries About Economy, Budget Battle

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Stocks drifted lower Monday, weighed down by worries about the strength of the U.S. economy and the likelihood of a protracted partisan budget fight in Washington. The S&P 500 and the Dow industrials both recorded their third straight day of declines.

The Dow Jones industrial average (^DJI) surrendered 49 points, or 0.3 percent, to 15,401, the Standard & Poor's 500 index (^GPSC) lost 8 points, or 0.5 percent, to 1,701 and the Nasdaq composite index (^IXIC) dropped 9 points, or 0.2 percent, to 3,765.

Investors were also swayed by comments Monday by William Dudley, president of the Federal Reserve Bank of New York, who said that the timeline that Fed Chairman Ben Bernanke articulated in June for scaling back the central bank's stimulus measures is "still very much intact," as long as the economy keeps improving.

Investors were caught off guard last week when the Fed decided against reducing asset purchases from the current $85 billion a month pace, after many had anticipated a change in policy in September.

The S&P 500 had rallied 1.2 percent last Wednesday after the decision by the Fed. But the index ended Monday down for a third straight day.

Adding to concerns Monday was the approaching Oct. 1 deadline for Congress to avoid a government shutdown as lawmakers negotiate ahead of the end of the fiscal year on Sept. 30.

Financial stocks fell the most among the 10 industrial groups in the S&P 500 index. Investors sold on concerns that earnings would be hurt by lower trading volumes of bonds and foreign currencies at investment banks.

Citigroup (C) shares fell 3.2 percent to $49.57, a day after the Financial Times reported Citi had a significant drop in trading revenue during the third quarter which could hurt the bank's earnings. Goldman Sachs (GS), which became a Dow component on Monday, also fell. The stock slipped 2.6 percent to $165.29.

In commodities news, the price for a barrel of benchmark U.S. crude fell $1.16 to $103.59, while gold slipped $5.50 to $1,327.

More Stocks in the News:

  • Apple (AAPL) rose the most in the S&P 500 after shoppers snapped up 9 million of its newest iPhones following a rollout of the devices Friday. Apple surged 5.1 percent to $491.

  • Trading in the shares of troubled smartphone maker Blackberry (BBRY) were suspended after financial company Fairfax Financial Holdings offered to buy the smartphone maker in a deal valued at $4.7 billion. BlackBerry shares ended the day up 1 percent to $8.81.

  • Moody's restored General Motors' debt to investment grade status, eight years after the company lost the rating as it spiraled toward bankruptcy protection. The upgrade came shortly after GM announced plans to buy back high-interest preferred stock from a union retiree health care trust fund for $3.2 billion. GM (GM) shares rose 0.9 percent to $37.15.

  • US Airways and American Airlines are extending their merger deadline until at least Jan. 18 as the companies await the outcome of an antitrust lawsuit filed by the federal government. The trial is scheduled to begin Nov. 25. Shares of US Airways (LCC) fell 0.2 percent to $18.86.

  • Along with Goldman Sachs, Nike (NKE) and Visa (V) began trading on the 30-member Dow industrials on Monday, replacing Alcoa (AA), Bank of America (BAC) and Hewlett-Packard (HPQ)

What to Watch Tuesday:

  • Standard & Poor's releases the S&P/Case-Shiller index of home prices for July at 9 a.m. Eastern time.

  • The Conference Board releases the Consumer Confidence Index for September at 10 a.m.

  • The Senate Budget Committee holds hearings on the impact of political uncertainty on jobs and the economy.

These major companies are scheduled to report quarterly corporate earnings:

  • CarMax Group (KMX)

  • Carnival Corp. (CCL)

  • KB Home (KBH)

  • Lennar Corp. (LEN)

-Compiled from staff and wire reports.