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Stocks drop as focus shifts to first debate

Adam Shell
USA TODAY

U.S. stocks, hurt by tumbling bank shares, closed sharply lower Monday as Wall Street shifts its focus from interest rate policy to politics as traders brace for the first presidential debate tonight between Hillary Clinton and Donald Trump.

Traders work on the floor of the New York Stock Exchange Sept. 16, 2016.  (EPA/JUSTIN LANE)

The Dow Jones industrial average, which tumbled 131 points Friday, closed down 166.62 points, or 0.91%. The broad Standard & Poor's 500 stock index finished 0.86% lower at 2146.10, and the Nasdaq composite closed 0.91% lower at 5257.49.

"Tonight's debate starts the election's critical point for stock investors," Dan Clifton, a Washington policy analyst at Strategas Research Partners, told clients in a research note. "Few events can move the needle as much as the first presidential debate -- with the average polling change from the first debate about 3 points."

The polls are narrowing heading into the first debate, which at least one Wall Street pro says is tantamount to a heavweight boxing match and which is expected to draw a TV audience of as many as 100 million, or Super Bowl proportions. A Sept. 22 Washington Post/ABC News poll of likely voters had the two candidates virtually in a dead heat, with Clinton leading Trump by a 46% to 44% margin, but well within the 4.5 percentage point margin of error.

"The markets are nervous ahead of the U.S. debates," Peter Rosenstreich, head of market strategy at Swissquote Bank, told USA TODAY via e-mail. "Risk appetite has faded with many analysts pointing to the tightening of the U.S. presidential election and uncertainty around tonight's debate as the primary catalysts."

U.S. government bonds finished higher, with the yield on the 10-year Treasury dipping to 1.586%.

U.S.-produced crude rose nearly 3% to $45.67, as traders look ahead to a key meeting in Algiers where OPEC members are again discussing whether to cap production in some fashion.

Last week, Wall Street got a lift from a market-friendly Federal Reserve, which opted to keep interests unchanged.

Stocks were in retreat around the globe Monday. Stocks in Asia got hammered, with Japan's Nikkei 225 index falling 1.3% and stocks in Hong Kong falling 1.6% and shares in mainland China closing 1.8% lower.

Shares were also lower across the board in Europe, with the broad Stoxx Europe 600 index off 1.6%. Stocks in Europe were hurt by a sharp drop in bank shares, hurt by a decline in Deutsche Bank shares to record lows.

U.S. bank stocks were also getting hit, with the SPDR S&P Bank ETF, which tracks a basket of bank stocks, down 2.1%. Bank shares were under pressure as investors worried about earnings weakness following the Federal Reserve's decision last week to keep interest rates unchanged. Low rates hurt bank profitability.

Shares of the German financial institution fell 7.1% in New York to $11.85 after a German magazine reported that Chancellor Angela Merkel would not authorize a bailout for the company as it faces a costly political problem in the U.S. The company has said the U.S. Justice Department is seeking a $14 billion civil settlement over the bank's alleged role in artificially propping up the U.S. housing market in the lead up to the Great Recession.

Contributing: Nathan Bomey

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