--Stock losses accelerate in afternoon trading on reports of struggle in Senate negotiations
--DJIA down 108; S&P 500 declines 10
--Citigroup falls 1.3% on disappointing third-quarter results
By Alexandra Scaggs
NEW YORK--U.S. stocks extended their losses in afternoon trading following reports that progress had halted in Senate
negotiations to reopen the federal government and raise the debt ceiling.
The Dow Jones Industrial Average fell 108 points, or 0.7%, to 15193 in afternoon trading. The S&P 500 index dropped 10
points, or 0.6%, to 1700, and the Nasdaq Composite Index lost 18 points, or 0.5%, to 3797.
Stocks turned sharply lower in afternoon trading to hit session lows, as news reports trickled out from the U.S.
Senate that negotiations to break the budget impasse had taken a turn for the worse. In the Treasury market, yields on
bills maturing on Oct. 17 and Oct. 24 surged to 0.345% and 0.510%, respectively, as hopes for a deal dissipated.
"This market is kind of 'sell first and ask questions later,'" said Ryan Larson, head of equity trading at RBC Global
Asset Management in Chicago. "As we continue to near the deadline, the market gets more nervous."
Investors have become more frustrated as the first partial government shutdown in 17 years drags on.
"We're being held hostage by the headlines," said John Lynch, Charlotte, N.C.-based regional chief investment officer
with Wells Fargo Private Bank, which manages $170 billion. "What [the standoff] does is scare our clients. We have to
make sure we're in front of them and they're not altering their long-term allocations on volatile day-to-day trading."
Stocks gyrated in choppy trading on developments in Washington during Tuesday's session. They opened broadly lower,
climbed off their morning lows on signs of progress, but then turned lower in afternoon trading on the reports on Senate
negotiations. Thursday is the deadline set by the Treasury Department to raise the federal borrowing limit.
Early last week, stocks dropped as little progress appeared to be made, but stocks recovered much of their losses in
following days. The Dow gained 525 points, or 3.6%, in the last four sessions. The S&P 500 closed Monday within 1% of
its record high, while the Nasdaq 100 ended at a 13-year high.
Even with Tuesday's losses, stock investors and traders said that they didn't expect the U.S. to default on its debt.
"Most people in the market expect that as we near the 11th hour, they will somehow find a way to reach a deal," said
Because of that, if a deal is reached, investors say it isn't clear how much more room stocks have to run.
"We've kind of gotten our rally around a likely deal," said Bill Stone, chief investment strategist at PNC Asset
Management Group, which manages around $117 billion. In the case of a deal, "I don't think you get much of a
Earnings-reporting season kicked into high gear Tuesday. While Washington is taking top billing, investors are keeping
an eye on companies' quarterly results and outlooks for next year.
"At some point, with earnings season upon us, it would be very nice for markets to focus on fundamentals instead of
this noise out of Washington," said Mr. Larson.
Citigroup shares fell 1.3% after the bank reported earnings below analyst expectations, hurt by weak fixed-income
While PNC's Mr. Stone isn't expecting robust earnings growth, he thinks that companies can continue to grind out
profits. That should mean good things for stocks, he said, particularly because investors aren't expecting strong
returns from the bond market.
"Stocks are more attractive than bonds and cash," he said. "I don't think they'll keep up the pace [of gains] they've
had, but they still have a good chance of beating out the other two" asset classes.
Among Dow components reporting results, Coca-Cola edged down 0.6% as the beverage giant's earnings and revenue were
reported in line with expectations. Johnson & Johnson advanced 0.5% after its results topped forecasts and it raised its
full-year earnings outlook.
Mr. Stone and other investors say they will be keeping an eye on how much a burgeoning recovery in European economies
will affect U.S. corporate results.
"At least Europe is on the mend," said Mr. Stone, adding it will "be interesting to hear what [companies] say about
their European businesses."
European stocks saw strong gains. Germany's DAX index rose 0.9% to close at a record high, boosted by upbeat data. The
U.K.'sFTSE 100 was 0.6% higher, and France's CAC 40 rose 0.8%. The benchmark Stoxx Europe 600 index gained 0.8%. As
equities rose, German and British bonds weakened.
Germany's ZEW economic expectations index for October rose to 52.8 from 49.6 in September, beating forecasts for an
A survey of manufacturing activity in the New York region missed expectations, helping weigh on stocks. The Federal
Reserve Bank of New York'sEmpire State Manufacturing Survey slipped to 1.52 in October from 6.29 in September, while a
slight decline to 5.5 was expected.
The report was released as fewer economic data have been available than usual; the federal government shutdown has
halted or delayed the release of some data points, such as this month's government employment report.
"We've got to hang our hat on what we get, right?" said Wells Fargo's Mr. Lynch.
Asian markets were mostly higher. Japan's Nikkei ended up 0.3%, Hong Kong's Hang Seng closed 0.5% higher, and Korea's
Kospi rose 1%. China's Shanghai Composite bucked the trend, closing down 0.2%.
In currency markets, the dollar edged up against the euro, while China's yuan briefly hit a record high against the
dollar, with the dollar at 6.1011 yuan. The People's Bank of China fixed the dollar-yuan pair at 6.1412 Tuesday, having
set it at a record low of 6.1406 Monday following dollar weakness overseas. The yuan is allowed to trade 1% above or
below the fixing.
Write to Alexandra Scaggs at firstname.lastname@example.org
(END) Dow Jones Newswires
Copyright (c) 2013 Dow Jones & Company, Inc.