Stocks plunge as debt debate continues

NEW YORK (AP) -- Stocks plunged Wednesday as the United States edged closer to an unprecedented default on its debt. The Dow Jones industrial average was headed for its worst weekly decline in nearly a year.

The Dow closed down more than 195 points.

The S&P 500 fell more than 26 points. The Nasdaq composite index fell more than 75 points.

Stocks traded lower all day. The declines worsened in the afternoon after the Federal Reserve released a survey showing that the economy deteriorated in much of the country this summer. The economy slowed in seven of the Fed's 12 regions because of weak home sales and a slowdown in manufacturing.

The declines in small-company stocks were even worse than those of large companies like the 30 industrial giants that make up the Dow average. The Russell 2000 index, which tracks smaller U.S. companies, fell 2.8 percent.

Because they are more vulnerable to economic downturns, the stocks of small companies tend to fall more than the rest of the market when the economy slows down or the stock market turns volatile. With the deadline for a debt deal less than a week away, the stocks that investors consider to be the riskiest are falling the most.

Stocks have been falling broadly since last Friday as an Aug. 2 deadline for raising the U.S. borrowing limit approaches. With no sign of a compromise between Republicans and Democrats in Washington, investors are becoming more fearful that the U.S.'s triple-A credit rating could be lowered or that the country might default on its debt. Either event would raise interest rates across the board and slow down the already weak U.S. economy.

 

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