By CHIP CUTTER, AP Business Writer
NEW YORK (AP) — Stocks fell in early trading Monday after congressional leaders failed to agree on a deal to raise the nation’s debt limit to avoid default.
Lawmakers hoped to reach a compromise late Sunday, but those talks stalled. President Barack Obama wants to raise revenues by letting tax cuts for wealthy Americans expire. Republicans have pushed for more spending cuts and have rejected higher taxes.
If an agreement is not reached by Aug. 2, the U.S. won’t have enough cash to pay all its bills. That could have a catastrophic impact on financial markets. The U.S. would likely lose its coveted triple-A credit rating. Interest rates would rise for millions of consumers. And stocks could fall the way they did during the 2008 financial crisis, analysts say.
Most traders expect the White House and Capitol Hill to come up with a last-minute deal. Yet there are still uncertainties about higher taxes or changes to government spending that could affect corporate profits. Investors also worry that the government may only come up with a short-term fix that could still trigger a credit rating downgrade.
“Were thinking this is going to be resolved,” said Rob Lutts, president and chief investment officer of Cabot Money Management. “The question: Is it resolved from a standpoint of a long-term solution or a stop-gap measure?”
The Dow Jones industrial average fell 62 points, or 0.5 percent, to 12,619 in morning trading. The Dow had been down as many as 145 points shortly after the opening of trading.
The Standard & Poor’s 500 index fell 5, or 0.4 percent, to 1,340. The Nasdaq composite index fell 12, or 0.4 percent, to 2,846.
Stock trading has varied widely over the past week because of concerns over debt problems in the U.S. and Europe. The Dow has alternated between gains and losses over the past nine trading days.
Many investors have turned to gold and precious metals as a safer place to park money. Gold rose $13 to $1,614.50 an ounce, while silver rose 34 cents to $40.48 an ounce. Gold has risen 14 percent this year, while silver is up 31 percent.
Bond prices fell, pushing their yields higher. The yield on the 10-year Treasury note rose to 3.02 percent from 2.96 percent late Friday.
European stocks were little changed even after Moody’s downgraded Greece’s credit ratings again. The agency warned that it is almost inevitable the country will default on its debt following a new bailout plan approved by European leaders last week.
Kimberly-Clark fell 1 percent after the maker of Kleenex tissues and Huggies diapers said its second-quarter profit fell by 18 percent as a result of higher prices for its raw materials and an increased tax rate.
BlackBerry maker Research In Motion Ltd. fell 3 percent after the company said it would eliminate 2,000 jobs, or about 10 percent of its work force. The company has had several product delays and is facing tough competition from Apple’s Inc.’s iPhone and smartphones that used Google Inc.’s Android operating system.
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