- Associated Press - Monday, November 21, 2011

NEW YORK — The markets were not surprised that the congressional supercommittee admitted defeat in efforts Monday to reach a deal to cut the federal budget deficit. But since summer, investors have sold at the first hint of trouble.

So on Monday, they sold. The Dow Jones industrial average lost almost 250 points on a day when investors despaired over debt problems at home and abroad.

Members of the Capitol Hill panel, created in August to come up with $1.2 trillion in deficit cuts over the next 10 years, indicated failure all day. After the markets closed, the committee’s bipartisan leadership made it official.

“They’re essentially giving up,” said Robert Robis, head of fixed income macro strategies at ING Investment Management.

The Capitol Hill stalemate is supposed to trigger automatic spending cuts across the government, but there were already hints that Congress would find a way around them, despite a threat by President Obama on Monday evening to veto any attempt to forestall the automatic cuts.

The stalemate also shows that lawmakers may not be able to make progress on anything budget-related in the coming months, said Robert Pavlik, chief market strategist with Banyan Partners LLC in New York.

“It shows that there’s a bigger problem at hand and, if they can’t work to resolve these relatively small yet meaningful issues, what’s going to happen if we get into a situation like Europe is in?” he said.

The result was another day of heavy selling in a stock market that has grown used to big swings. The Dow finished down 248.85 points, or 2.11 percent, at 11,547.31. At its low point of the day, the Dow was down 342 points.

The selling swung the Dow from a gain for the year to a loss, the first time that has happened in a month.

In Europe, Moody’s, one of the leading private credit ratings agencies, warned that France could face a downgrade because the debt crisis in Europe has pushed borrowing costs higher for the French government. For now, France has a rating of the top rating of AAA.

Stock indexes fell 3.4 percent in both Germany and France - bigger declines than in the United States.

The Standard & Poor’s 500 index dropped 22.67, or 1.86 percent, to 1,192.98. The S&P 500 fell 3.8 percent last week, its worst since September. The Nasdaq composite index declined 49.36, or 1.92 percent, to 2,523.14.

The declines Monday were broad. Energy and technology stocks lost the most. All 30 stocks in the Dow average fell, led by Boeing Co. with a 4.7 percent decline. The dollar rose along with U.S. Treasury prices.

Despite the melodramatics in Washington, at least one rating agency said the standoff would not affect the U.S. government’s credit rating - for now.

Analysts at Standard & Poor’s said the supercommittee’s failure to reach a deal was “consistent with our August 5 decision to lower our rating to AA+.” But the rating agency warned that if there was any move in Washington to sidestep the spending caps now called for, “downward pressure on the ratings could build.”

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