Debt limit worries hit stocks harder

The stock market’s slow bleed got a little worse Tuesday.

The decline is the result of squabbling in Washington over raising the nation’s debt limit and a government shutdown that has dragged on for more than a week. Losses for the stock market were moderate in the first days of the shutdown but have accelerated this week as the U.S. has moved closer to the deadline for lifting its borrowing authority.

Stocks opened f lat, moved steadily lower and slumped in the final minutes of trading Tuesday. The loss added to a three-week decline that has knocked the Standard & Poor’s 500 index down 4% since hitting a record high Sept. 18.

The S&P 500 index dropped 20.67 points, or 1.2%, to 1,655.45. It was the biggest one-day drop for the index since Aug. 20. The declines were led by phone companies.

The Dow Jones industrial average fell 159.71 points, or 1.1%, to 14,776.53. Nasdaq dropped 75.55 points, or 2%, to 3,694.83.

Nervous investors also dumped short-term government debt as they worried that the standoff in Washington could jeopardize the nation’s ability to pay its bills, including interest on its debt, as early as next week if Congress doesn’t raise the borrowing limit.

The yield on Treasury bills maturing in one month soared to 0.28%, its highest level since the 2008 financial crisis. The yield was 0.15% on Monday and close to zero at the beginning of October.

The yield, which rises as the price of the notes fall, has surged as managers of money-market funds become more wary of holding short- term government debt that matures shortly after the debt deadline.

There were other signs of increasing investor nervousness.

The VIX index, which rises when investors are getting more concerned about stock f luctuations, climbed to its highest level of the year.

“Unfortunately, we’re just held hostage by what’s going on in Washington,” said Dan Veru, chief investment officer of Palisade Capital Management.