U.S. stocks down on debt crisis

U.S. stocks fell sharply on Wednesday, as Republicans and Democrats seemed as far from an agreement to raise the debt ceiling as ever.

The Dow Jones industrial average dipped 199 points, or 1.6 percent, to 12,303, the S&P 500 closed down 27.1 points, or 2 percent, to 1,305 and the technology-company-laden Nasdaq Composite Index fell 75.2 points, or 2.7%, to 2,765.

This was Nasdaq’s biggest one-day drop since February, and the biggest fall for the Dow and S&P 500 since the beginning of June, Fox News noted.

The markets reacted to the news that House Republicans and Senate Democrats were scrambling to rewrite their deficit-reduction plans after the Congressional Budget Office had found that both parties’ budgets wouldn't reduce the deficit by as much as they had promised. A vote on the House measure was postponed until at least Thursday.

With less than a week to go before the Aug. 2 deadline to raise the $14.3 trillion debt ceiling, investors are growing concerned that Republicans and Democrats will not reach an agreement in time, leading the country to default on its debt or see its credit rating downgraded.

“Investors remain hopeful that a deal can be made in time, but the longer the delay goes on, the more entrenched investors’ fears become,” Joshua Raymond, chief market strategist at City Index, told the New York Times.

As earlier in the week, European stock markets were also weighed down by the lack of progress towards solving the U.S. debt-ceiling crisis. The FTSE 100 index of leading British shares and the DAX in Germany each fell about half a percent, and the CAC 40 in France was down 0.90 percent.

(Global Post reports: Global stocks fall on US debt crisis)

Skittish investors fled to gold, which reached a nominal record high above $1,625 an ounce on Wednesday. And in the credit derivatives market, where investors can insure American debt through credit default swaps, the cost of buying that insurance reached a record high. Premiums for one-year credit default swaps on the U.S. traded above 90 basis points in London, the Financial Times reports.