US STOCKS-Futures fall on uncertainty over when shutdown will end
* Government shutdown enters third day, no end in sight
* Shutdown may delay Fed ability to gauge need for stimulus
* Jobless claims seen rising; Sept ISM services index on tap
* Futures down: Dow 38 pts, S&P 3.1 pts, Nasdaq 5.5 pts
NEW YORK, Oct 3 (Reuters) - U.S. stock index futures fell on Thursday amid lingering market uncertainty as a partial U.S. government shutdown extended to a third day and leaders in Congress showed no sign of progress towards resolving the stalemate.
The situation in Washington has pressured equities, with the S&P 500 having dropped in eight of the past 10 sessions. While a short-term government closure is expected to have a limited effect on the U.S. economy, the impact will be greater as the deadlock continues, with market volatility expected to spike.
President Barack Obama met with Republican and Democratic leaders in Congress late Wednesday to try to break the budget deadlock that has shut down wide swaths of the government, but there was no breakthrough and both sides blamed each other. Obama's healthcare law was at the center of the impasse.
"We're supposed to pick stocks, and trying to decide how political figures will negotiate is not Wall Street's strong suit. That's a very uncomfortable situation to be in," said Kim Forrest, senior equity research analyst, Fort Pitt Capital Group in Pittsburgh.
Because of the shutdown, up to 1 million Federal employees were put on furlough, and the release of government economic data - including potentially the key payroll report scheduled for release on Friday - has been delayed. A Federal Reserve official said the impasse could delay the central bank's ability to assess whether its monetary stimulus efforts are still needed.
Investors are also watching the situation for what it could mean for the higher-stakes battle over the government's borrowing power, which is expected to come to a head soon. The Treasury has said the United States will exhaust its borrowing authority no later than Oct. 17. If no deal is reached on raising the debt ceiling, the U.S. could default on its debt.
"In the short term, this uncertainty could cause a lot of disruption," said Forrest, "but if you have a longer-term time frame, this might be a positive. We thought the market had gotten ahead of itself, so this could be a chance to get in."
S&P 500 futures fell 3.1 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures fell 38 points and Nasdaq 100 futures lost 5.5 points.
Despite the recent declines, buyers have come in as the S&P approached its 50-day moving average of 1,679.99. The moving average represents a measure of the near-term trend in the market and often investors will buy in clusters at such levels.
The CBOE Volatility index, used to measure investor anxiety, rose 6.8 percent to 16.60. The index has gained more than 25 percent over the past two weeks.
Weekly jobless claims are scheduled for release at 8:30 a.m. EDT (1230 GMT) and are seen rising by 8,000 to 313,000 in the latest week. The Institute for Supply Management's September read on the services sector will be released at 10:00 a.m. and is seen dipping to 57.4 from 58.6 in the previous month.
Constellation Brands Inc shares rose 3 percent to $60 before the bell, after reporting its second-quarter results.
BP Plc won a legal reprieve in its effort to force the administrator of a settlement, relating to the 2010 Gulf of Mexico oil spill, to tighten standards in assessing claims, potentially sparing the oil company billions of dollars of extra costs. U.S. shares rose 0.6 percent to $42.37 in premarket trading.
Otsuka Holdings Co's $886 million bid for Astex Pharmaceuticals Inc has run into opposition from an activist shareholder who says the deal significantly undervalues the U.S. biotech firm - a charge that Astex has denied.