US markets

US stocks fell sharply on Wednesday, in the third consecutive day of losses, as investors feared the country's debt-ceiling standoff could force a default or downgrade of US Treasury debt. The sell-off came as Democrats and Republicans continued their bitter standoff over raising the federal government's $14.29 trillion debt ceiling, despite frantic warnings from the US Treasury that failure to act by next Tuesday could force the government to default on its debts. U.S. stocks sunk for a fourth straight session Wednesday amid signs of economic softness and a deepening impasse on the debt crisis in Washington, D.C.

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The Dow Jones Industrial Average dropped 164 points, or 1.3%, to 12337, the Standard & Poor's 500-stock index fell 23 points, or 1.8%, to 1308 and the Nasdaq Composite lost 67 points, or 2.4%, to 2773. The Dow has shed nearly 400 points over the course of its losing streak. The declines were led by technology and industrial stocks, which were among the weakest stocks in the S&P 500 for a second consecutive session.

Caterpillar was off 3.7%, United Technologies fell 2.3%, DuPont fell 2.7% and Alcoa shed 3.2%, while 3M fell 1.6% after dropping 5.4% on Tuesday following its earnings results. Cisco Systems was the Dow's biggest decliner, dropping 3.7% after rival Juniper Networks reported weak second-quarter results and offered a downbeat forecast. Juniper tumbled 21%. 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 promised, throwing the latest round of negotiations over the U.S. debt crisis into question.

Adding to the gloom was news on durable-goods orders, which suggested continued sluggishness in manufacturing. Orders for goods designed to last at least three years fell 2.1% in June; economists had expected a 0.4% increase. Some strong corporate earnings lent some support, led by Boeing. The blue-chip aerospace and defense company gained 1.2% after reporting higher than expected second quarter earnings and raising its full year outlook. Amazon.com rallied 3% as investors cheered the online retailer's better than expected second quarter earnings results. A strong third quarter outlook also helped, allowing the stock to open at a record high. Delta Air Lines fell 5.8% after second-quarter earnings fell amid higher fuel prices. The decline weighed on rivals United Continental and AMR Corp., the parent company of American Airlines. United and AMR fell 3.8% and 1.9%, respectively.

European markets

Europe's main stock markets fell sharply on Wednesday, as banks were hit by poor results from Spanish giant Santander, and the United States appeared on course for a potentially calamitous debt default. Worries over the second bailout of Greece also dragged on sentiment, as borrowing prices remained high for Italy, fueling fears of contagion. London's benchmark FTSE 100 index of top shares was down 1.23 percent at 5,856.58 points. In Frankfurt, the DAX fell 1.32 percent to 7,252.68 points and in Paris the CAC 40 dropped 1.42 percent to 3,734.07 points.

Milan share prices dropped sharply with the FTSE MIB index losing 2.81 percent. The loss reflected investor fears about debt crisis contagion in the eurozone and lingering questions over the complex arrangements announced Thursday to rescue Greece for a second time. Germany's warning that new rescue arrangements were not a blank cheque did nothing to reassure nervous markets. Pressure on European banks began after US giant Goldman Sachs lowered its outlook for the sector.

Santander reported a 21.2-percent slump in first-half net profits to EUR3.501 billion after setting up a special EUR620-million fund in Britain. The fund is to cover any eventual claims over payment protection insurance wrongly sold in Britain, the bank said. The news sent the group's share price plunging 3.18 percent to EUR7.34 on the Madrid stock market, which closed 1.93 percent lower. Meanwhile, the United States remains on course for default, with common ground still elusive on a deal that would let Washington borrow the cash it needs to pay its bills.

Asian markets

Asian stock markets ended mixed Wednesday, as U.S. debt worries maintained their grip on the region's investors. Japan's Nikkei Stock Average closed the session down 0.5% at 10047.19 as a strong yen pressured exporters, while Australia's S&P/ASX 200 finished 0.8% lower at 4537.4 after news that inflation had exceeded expectations raised the possibility of another interest-rate increase, sending the Australian dollar to a fresh high.

Hong Kong's Hang Seng Index managed to breach positive territory for part of the session, but weakness in shares of export-focused companies dragged the benchmark to a 0.1% loss at 22541.69. India's Sensex fell 0.5% to 18432.25. Among the region's winners, the Shanghai Composite index ended 0.8% higher at 2723.49, and South Korea's Kospi recovered from early losses to rise 0.3% to 2174.31. However, some banks and property firms advanced on bargain-hunting, with Henderson Land Development up 1.1%, China Resources Land up 1.5% and Bank of China 0.6% higher. Conita Hung, head of equity markets at Delta Asia Financial Markets, said Hong Kong-listed financial stocks appear to have bottomed out, with negative news now already factored into prices.

In addition, she said, the Hong Kong market is likely to benefit from strong earnings expectations, as some heavyweight U.S. companies have put out well-received results in recent weeks. South Korea's LG Electronics gained 2.6% after reporting a return to profit that beat analysts' expectations, helping to lift the Seoul market out of early gloom that followed the release of a below-forecast reading on economic growth.

Australian consumer-discretionary stocks were weaker after the inflation data, with department-store owner Myer Holdings down 2.8%, and electronics and appliance retailer Harvey Norman surrendering 2.6%. India was dragged down in part by Bharta Heavy Electricals, the country's largest power-equipment maker, which fell 4.4% after reporting weak results Tuesday.

Base metals

Base metals closed mostly lower on the London Metal Exchange Wednesday as a stronger dollar and disappointing manufacturing data in the U.S. weighed on prices. At the close, LME three-month copper was 0.4% lower at $9,779 a metric ton. Lead saw the steepest losses, closing the day down 1.1% at $2,690/ton. Oil futures fell sharply Wednesday after the government reported a surprise increase in U.S. oil stockpiles and as the first deliveries from the Strategic Petroleum Reserve hit the market. Light, sweet crude for September delivery settled down $2.19, or 2.2%, to $97.40 a barrel on the New York Mercantile Exchange.

Brent crude on the ICE Futures Europe exchange recently traded down 90 cents, or 0.8%, to $117.38 a barrel. U.S. oil inventories rose 2.3 million barrels last week, the DOE's Energy Information Administration said, bucking expectations for a decline. At the same time, U.S. refineries pared their operations, suggesting that demand for refined fuels could be weakening during the peak summer driving season. Gold futures slumped to a two-day low as tensions over the U.S. budget stalemate and renewed concerns about European debt roiled the currency markets and flushed out anxious investors.

President Barack Obama and Republican party leaders must reach a deal to raise the U.S.'s borrowing limit by Tuesday to avoid a debt default and keep the country's AAA credit rating intact. Gold will be the first line of defense for many investors in the event of a U.S. default as it is less vulnerable to market shocks than equities or bonds. Gold for August delivery, the most actively traded contract, fell $1.70, or 0.1%, to settle at $1,615.10 a troy ounce on the Comex division of the New York Mercantile Exchange. The contract set an intraday record of $1,628.80 a troy ounce earlier in the day.

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