Stocks fall as lawmakers remain at odds over debt

NEW YORK — Stocks plunged Wednesday as the U.S. 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 1.6 percent, 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 2 percent, to 1,304.89. The technology-focused Nasdaq composite index fell 75.17 points, or 2.6 percent, 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 percent 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 percent 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 Aug. 2,” the deadline for raising the U.S. debt limit, said Channing Smith, managing director of Capital Advisors Inc. “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 eight 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.

With no sign of a compromise in Washington, investors are becoming more fearful that the U.S. rating could be lowered. That would raise interest rates and slow down the already weak economy.

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