NEW YORK-The debt showdownin Washington is rattling the stock marketagain.US stocks fell yesterday after Republicanand Democratic leaders offeredcompeting proposals to avoid a catastrophicdefault on the US government'sdebt.Lawmakers hoped to reach a compromiseon raising the country's borrowinglimit late Sunday, but those talksstalled. President Barack Obamawants to raise revenues by letting taxcuts for wealthy Americans expire.Republicans have pushed for more spendingcuts and have rejected highertaxes.If an agreement is not reached byAugust 2, the US won't have enoughcash to pay all its bills. That couldhave a huge impact on finanial markets.
The US would likely lose itscoveted triple-A credit rating. Interestrates would rise for millions of consumers.And stocks could fall theway they did during the 2008 financialcrisis, analysts say.Most traders expect the White Houseand Capitol Hill to come up with a lastminutedeal. Yet there are still uncertaintiesabout higher taxes or changesto government spending that could affectcorporate profits.Investors also worry that the governmentmay only come up with a shorttermfix that could still trigger acredit rating downgrade.The Dow Jones industrial averagefell 88.36 points, or 0.7 per cent, to closeat 12,592.80. The Dow had beendown as many as 145 points earlier.The Standard & Poor's 500 indexfell 7.59, or 0.6 per cent, to 1,337.43. TheNasdaq composite index fell 16.03, or0.6 per cent, to 2,842.80.
Many investors are reluctant tobuy stocks because of concerns over thebudget impasse in Washington. Tradingvolume, or the number of sharesbought and sold on a given day, has fallen22 per cent in July on the NewYork Stock Exchange compared with thesame month a year ago. If that continues,July will have the lowest averagedaily volume since December2007.Some investors have turned to goldand other precious metals as a placeto park money while the US andEuropean debt problems get sorted out.Gold rose US$10.70 to US$1,612.20an ounce Monday, while silver rose24 cents to US$40.36 an ounce.Gold has risen 14 per cent thisyear, while silver is up 31 per cent.(AP)