Markets Swoon on Debt Fear

Deadlock Fuels Worst One-Day Dow Drop in Two Months

By JONATHAN CHENG

Financial investors grew increasingly worried Wednesday about lawmakers' failure to reach accord on raising the debt ceiling, pushing U.S. stocks to their worst one-day drop in two months and weakening the demand for Treasury securities.

The Dow Jones Industrial Average fell 198.75 points, or 1.6%, to 12302.55. The daily decline was the fourth straight, leaving the Dow down 3.3% in that period and on pace for its worst week since August 2010. Risk-averse investors began selling Treasury bills maturing in coming weeks, and an auction for Treasury debt drew lackluster interest. Asian markets opened lower on Thursday morning, with the Nikkei average down 1.1%.

The Dow Jones Industrials slid 199 points as signs of economic softness and a deepening impasse on the U.S. debt crisis sent investors running for cover for a fourth straight session. Paul Vigna has details.

 "The politicians seem further apart than they were a few days ago, but we're even closer to the deadline," said David Waddell, president and chief investment strategist at Waddell & Associates, referring to the Aug. 2 date when the U.S. is expected to start running out of money to pay bills unless its borrowing authority is increased.

Investors, Mr. Waddell said, "are at the point where they're saying, 'Take me to cash.' Politicians are really taking it to the pain threshold, where the everyman investor has just about had enough."

The market pessimism came after the Congressional Budget Office said budget plans put forth by Senate Democrats and House Republicans wouldn't reduce the deficit by as much as envisioned, throwing the latest bids for a debt-ceiling solution into question. The CBO assessment forced House Speaker John Boehner to postpone a scheduled Wednesday vote on his plan to raise the borrowing limit and cut the deficit in two steps. Mr. Boehner set a Thursday vote on a revised plan.