U.S. stocks dip on Washington fiscal impasse; Dow down 0.40%

U.S. stocks fell on Wednesday as budget talks continued in the U.S. Congress with fears growing that the impasse could prompt a government shutdown.

Lackluster U.S. data dampened stock prices as well.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.40%, the S&P 500 index fell 0.27%, while the Nasdaq Composite index fell 0.19%.

Congress must approve of a spending package to fund the federal government by October or risk forcing the government to partially shut down as it hits its debt ceiling.

The House of Representatives recently approved legislation to fund the government through Dec. 15, however, lawmakers also voted to defund President Barack Obama's healthcare bill, the Affordable Care Act.

While the bill faces little chance of survival, concerns that both parties will go back and forth crafting and rejecting spending proposals as the U.S. approaches its debt ceiling repelled investors away from stocks.

The bill remained in the Senate on Wednesday.

Spotty data in the U.S. also managed to convince investors to spend the day elsewhere.

In a report, the Census Bureau said that U.S. new home sales rose 7.9% to a seasonally adjusted 421,000 units in August from a downwardly revised 390,000 in July. Analysts were expecting new home sales to rise to 420,000 units last month. 

A separate report showed that U.S. core durable goods orders, excluding transportation items, fell 0.1% in August, disappointing expectations for a 1% increase, after an upwardly revised 0.5% contraction the previous month. 

Overall durable goods orders in the U.S. rose 0.1% last month, short of expectations for a 0.2% increase following a downwardly revised 8.1% decline in July.

Elsewhere, a report that Wal-Mart Stores was planning to cut orders to deal with rising inventories added to losses as well, though Wal-Mart later labeled the report as misleading.

Leading Dow Jones Industrial Average performers included JPMorgan Chase, up 2.74%, Cisco, up 1.28%, and Merck, up 0.40%.

The Dow Jones Industrial Average's worst performers included Wal-Mart Stores, down 1.44%, Johnson & Johnson, down 1.29%, and Procter & Gamble, down 1.14%.

European indices, meanwhile, finished mixed.

After the close of European trade, the EURO STOXX 50 rose 0.08%, France's CAC 40 fell 0.01%, while Germany's DAX 30 rose 0.01%. Meanwhile, in the U.K. the FTSE 100 finished down 0.30%.

On Thursday, the U.S. is to release its weekly report on initial jobless claims, as well as final data on second-quarter growth and private-sector data on pending home sales.