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Stocks: Nasdaq tumbles 2% as shutdown drags on

Adam Shell and Kim Hjelmgaard
USA TODAY
Traders work on the floor of the New York Stock Exchange on Oct. 7, 2013.
  • Debt ceiling deadline is starting to unnerve investors
  • Asia markets see modest gains%3B China stocks up 1%25
  • Oct. 17 is deadline to raise debt ceiling

Stocks tumbled Tuesday -- with the Nasdaq taking a pounding -- as the political standoff in Washington continued and the partial government shutdown stretched into its eighth day.

The Dow Jones industrial average fell 159.71 points, or 1.1%, to 14,776.53 and the Standard & Poor's 500 index dropped 20.67 points, or 1.2% to 1,655.45. It was the 11th loss in the last 14 days, and the S&P 500's biggest drop in six weeks.

The Nasdaq composite plunged 75.54 points, or 2%, to 3,694.83.

Anxiety over an Oct. 17 deadline to raise the nation's debt ceiling is starting to eat away at investor sentiment as compromise in Washington remains absent, says Pat Adams, a portfolio manager at Choice Investment Management.

While Adams says a default is avoidable, as the U.S. could maneuver its finances enough to pay off coming interest payments owed on government bonds without a Congressional deal, investors are still seeking some protection, he says.

"Markets tend to always seek protection until a concern is eliminated," Adams told clients in a research note, adding that the market, already down 3% from its Sept. 18 high, could tumble a total of 5% to 7% from that recent peak "if a debt ceiling deal is not close to being done by the 16th of October." He warns that stocks could fall even more if the Oct. 17 deadline passes without a deal.

Aside from the theatrics in Washington, investors will also be paying close attention Tuesday to the unofficial start of the third-quarter earnings season. After the closing bell, aluminum maker Alcoa and fast-foot chain Yum Brands will report. Analysts are expecting companies in the S&P 500 to grow their earnings 4.3% vs. the same quarter a year ago.

In Asia on Tuesday, Japan's Nikkei index inched up by 0.3% to 13,894.61, while Hong Kong's Hang Seng index was up 0.9% to 23,178.85. China's Shanghai composite was up 1.1% to 2,198.20.

Benchmarks across Europe extended recent losses. Britain's FTSE 100 index fell 1.1% to 6,365.83 while Germany's DAX index lost 0.4% to 8,555.89. France's CAC 40 index dropped 0.8% to 4,133.53

Benchmark crude oil for November delivery rose 55 cents to $103.58 per barrel in electronic trading on the New York Mercantile Exchange. The contract fell 81 cents to close at $103.03 a barrel on the Nymex on Monday.

In government bond trading, the yield on the 10-year Treasury note rose to 2.64% from 2.63% Monday.

On Monday, the Dow fell 136.34 points, or 0.9%, to 14,936.24 and the S&P 500 slumped 14.38 points, or 0.9%, to 1,676.12. The Nasdaq dropped 37.38 points, or 1%, to 3,770.38.

Contributing: Associated Press

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