U.S. stocks drop as fiscal impasse frays nerves; Dow down 0.46%

U.S. stocks fell on Friday as a congressional deadline to pass a spending package and avoid a government shutdown grew closer with little compromise in sight by the closing bell.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.46%, the S&P 500 index fell 0.41%, while the Nasdaq Composite index slid 0.15%.

Congress must approve a spending package by Oct. 1 or risk partial government shutdown afterwards.

While markets are expecting a last-minute deal, uncertainty steered investors away from the U.S. stocks on Friday. 

The Democratically-controlled Senate earlier Friday approved a stop-gap spending bill to fund the government through Nov. 15.

The bill was stripped of language defunding President Barack Obama's healthcare reform law, though the legislation will go back to the Republican-controlled House of Representatives, which called for defunding the president's healthcare law in the first place.

On Friday afternoon, President Obama urged Congress to come to an agreement and prevent a shutdown.

Mixed data sent stocks falling as well.

Elsewhere, the Thomson Reuters/University of Michigan consumer sentiment index fell to 77.5 in September from a reading of 76.8 the previous month. 

Analysts were expecting the index to rise to 78.0 this month. 

Separately, official data showed that U.S. personal spending rose 0.3% in August, in line with expectations, after an upwardly revised 0.2% increase the previous month. 

Data also showed that personal income in the U.S. rose 0.4% last month as expected after an upwardly revised 0.2% gain in July, also in line with expectations. 

Core personal consumption expenditures, which exclude food and energy, rose 0.2% in August, more than the expected 0.1% gain after a 0.1% increase in July. 

The data continued to cloud market expectations as to when the Federal Reserve will begin taper its USD85 billion monthly bond-buying program, which bolster stocks prices by driving down interest rates to spur recovery. 

Leading Dow Jones Industrial Average performers included Nike, up 4.68%, Microsoft, up 1.53%, and Pfizer, up 1.30%.

The Dow Jones Industrial Average's worst performers included Intel, down 1.88%, Cisco, down 1.85%, and IBM, down 1.76%.

European indices, meanwhile, finished largely lower.

After the close of European trade, the EURO STOXX 50 fell 0.20%, France's CAC 40 rose 0.07%, while Germany's DAX 30 fell 0.03%. Meanwhile, in the U.K. the FTSE 100 finished down 0.81%.