US STOCKS-Wall Street drops as shutdown enters third day
* Government shutdown enters third day, no end in sight
* S&P 500 on track for ninth loss in past 11 sessions
* Jobless claims come in below expectations in latest week
* Indexes down: Dow 0.7 pct, S&P 0.8 pct, Nasdaq 0.6 pct
NEW YORK, Oct 3 (Reuters) - U.S. stocks fell on Thursday amid lingering market uncertainty as a partial U.S. government shutdown continued for 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 nine of the past 11 sessions. All 10 S&P sectors fell, with industrial names among the hardest hit. Boeing Co fell 1.9 percent to $115.60.
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. Goldman Sachs estimated on Wednesday a short-term shutdown would slow U.S. economic growth by about 0.2 percentage point, while a weeks-long disruption could shave 0.4 percentage point off growth, as furloughed workers trim personal spending.
"People thought the shutdown would last one or two days, and now it appears it could be much longer than that. No one knows what to do, and there's a question about whether to start reducing risk now," said Michael O'Rourke, chief market strategist at JonesTrading in Greenwich, Connecticut. "We know there will be a deal eventually, and you want to be long for whenever that deal comes."
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.
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.
"The debt ceiling and the shutdown have essentially become one and the same, as investors need to see both get resolved soon," said O'Rourke.
The Dow Jones industrial average was down 111.04 points, or 0.73 percent, at 15,022.10. The Standard & Poor's 500 Index was down 12.62 points, or 0.75 percent, at 1,681.25. The Nasdaq Composite Index was down 22.68 points, or 0.59 percent, at 3,792.34.
Despite the recent declines, buyers have come in as the S&P approached its 50-day moving average of 1,679.88. 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 5.1 percent. The index has gained more than 33 percent over the past two weeks.
Because of the shutdown, up to 1 million Federal employees were put on furlough, and the release of government economic data - including, potentially, Friday's key payroll report - 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.
Some data continued to be released, and weekly jobless claims rose less than expected in the latest week, remaining at pre-recession levels in a signal of growing strength in the labor market. Growth in the U.S. services sector cooled last month after approaching an eight-year high in August, according to the Institute for Supply Management's September non-manufacturing index.
Constellation Brands Inc rose 2.2 percent to $59.56 after reporting its second-quarter results and raising its full-year outlook.
Tesla Motors Co shares fell 2.4 percent to $176.69 after an automotive blog published images of a Model S electric sedan in flames after an accident.
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 1.2 percent to $42.61.