US stocks plunge over 2% despite debt deal

US stocks wiped out most of their gains for 2011 on Tuesday, plunging as poor economic data overshadowed a congressional deal to raise the country's debt ceiling and avoid a default. It was the eighth straight day down for the US markets, the longest losing streak since October 2008, and saw the Nasdaq and S&P 500 indices close below where they started the year, while the Dow was at its lowest since mid-March. The Dow Jones Industrial Average closed lower by 265.87 points (2.19 percent) at 11,866.77. The broader S&P 500 dropped 32.89 points (2.56 percent) to 1,254.05, while the tech-heavy Nasdaq Composite shed 75.37 points (2.75 percent) to 2,669.24. Markets were unimpressed by the deal signed by President Barack Obama to end a months-long fight over raising the US borrowing limit that had led the country to the edge of an unprecedented default on its debt. Even though that uncertainty was lifted, traders focused on data that showed US consumer spending declined in June, the first drop in nearly two years that pointed to the economy stalling at mid-year. "Weak data intensified worries about the economic recovery, and the passage by Congress of a debt-ceiling plan didn't help," said Scott Marcouiller of Wells Fargo Advisors. "Some economists said federal spending cutbacks may contribute to a further slowdown in the economy, and the US remains at risk of losing its triple-A credit rating," he added. "In the space of a week, investors' opinions have completely turned around," said Gregori Volokhine of Meeschaert Capital Markets. "Now, we start to have people talking about a recession in the second half of the year," he said. All 30 Dow blue-chips fell, with Boeing dropping 2.6 percent, Caterpillar 3.5 percent, and United Technologies 3.4 percent. The three are all important US defense contractors, and could face curtailed sales from long-term cuts to military spending under the deficit reduction side of the plan to hike the debt ceiling Tuesday. Sprint-Nextel lost 6.8 percent; Pfizer, which beat analyst expectations with a 5.0 percent rise in second quarter profits, lost 4.6 percent; and US traded shares for Alcatel-Lucent lost 6.6 percent. On the Nasdaq, News Corp. shares lost 5.0 percent, while Comcast gave up 4.7 percent. Bond yields fell to their lowest level so far this year. The yield on the 10-year Treasury dropped to 2.62 percent from 2.74 percent late Monday, while that on the 30-year bond fell to 3.92 percent from 4.07 percent.