U.S. stocks drop as government shutdown continues; Dow falls 0.90%

U.S. stocks dropped on Monday as a government shutdown entered a second week amid concerns the deadlock may carry over into upcoming debt-ceiling debates and up the likelihood of government defaults.

Even if a compromise is reached, fears the uncertainty alone may roil markets steered investors away from stocks on Monday.

At the close of U.S. trading, the Dow Jones Industrial Average finished down 0.90%, the S&P 500 index fell 0.85%, while the Nasdaq Composite index fell 0.98%.

An ongoing impasse among U.S. lawmakers and the White House over terms needed to create a spending package and reopen the government sent investors avoiding Wall Street on Monday.

Markets were also growing increasingly worried that the deadlock will affect negotiations to raise the U.S. debt ceiling, which the U.S. Treasury Department has estimated will be reached by Oct. 17, after which the risk of default rises. 

Republican House Speaker John Boehner said Sunday the House will not support bills to fully reopen the government or increase the government debt ceiling unless the Obama administration agrees to talks aimed at reducing the deficit.

For his part, Treasury Secretary Jack Lew said the Congress was "playing with fire" and added the U.S. could default in over a week.

A U.S. default could roil markets and slow U.S. recovery by further eroding confidence in Washington's ability to craft economic policy.

Markets didn't plunge, however, as the Treasury can still fund the government for some time if Oct. 17 comes and goes with special measures, though the longer the impasses drags on ahead of that date the more volatile markets may grow.

Leading Dow Jones Industrial Average performers included AT&T, up 0.77%, Verizon, up 0.40%, and Intel, up 0.09%.

The Dow Jones Industrial Average's worst performers included Visa, down 2.17%,  American Express, down 1.79%, and Microsoft, down 1.68%.

European indices, meanwhile, finished largely lower.

After the close of European trade, the EURO STOXX 50 fell 0.29%, France's CAC 40 rose 0.03%, while Germany's DAX 30 fell 0.36%. Meanwhile, in the U.K. the FTSE 100 finished down 0.26%.