Stocks fall as Brexit fears reemerge

U.S. stocks bounced around and ended lower Tuesday while the British pound sank to its lowest level versus the dollar since 1985 as Britain moves closer to  actually exiting the European Union.

The Dow Jones industrial average lost 85 points on the day, ending down 0.5%, after rising as much as 57 points.  The broader Standard & Poor's 500 stock index ended down 0.5%, and the Nasdaq composite lost 0.2%.

After a solid 3.3% gain in the third quarter of 2016, U.S. equity markets kicked off the fourth quarter Monday slightly in the red as uncertainties related to Brexit, the presidential election and the coming third-quarter earnings season weighed on investor sentiment.

Pound sinks to dollar level last seen in 1985

Currency markets were again in the spotlight Tuesday after comments over the weekend from UK Prime Minister Theresa May that noted that Britain would begin the long multi-year process of exiting the EU by the end of March 2017. May's words sparked fear of a so-called "hard Brexit," in which the UK would forego full access to the single-market trading bloc in order to have fuller control of its border. That strategy roiled markets, especially in the UK, as it has created fresh uncertainty as to how much Brexit would hurt the UK economy.

The pound on Tuesday fell as low as 1.2736 vs. the dollar, its lowest level in 31 years and below where it was trading before the June 23 Brexit vote that shocked markets. Post Brexit, the pound has dropped as much as 15% vs. the dollar.

A big beneficiary of the weaker pound, however, is the UK's benchmark FTSE 100 stock index. In London trading Tuesday, the index, which gets 70% to 75% of its earnings from outside the UK, surged nearly 2% to a record high of 7119. A cheaper pound makes UK exports more competitive.

Ongoing uncertainty related to the presidential election, which continues to be a tight race between Hillary Clinton and Donald Trump, continues to weigh on markets, as does the coming third-quarter earnings season which could extend a string of quarterly profit contractions for the S&P 500 to a fifth straight quarter, according to earnings tracker Thomson Reuters I/B/E/S.

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Wall Street will be eyeing the vice presidential debate later tonight between Democrat VP candidate Tim Kaine and Republican Mike Pence.

In interest rate news, Richmond Fed president Jeffrey Lacker, citing prior Fed moves to ensure inflation doesn't spike and hurt the economy, said early Tuesday that a "strong case" remains for the Fed to raise its key borrowing rate above its current low level, arguing that a preemptive rate hike would head off the need for a faster rate hike pace later.

"Prudent preemptive action can help us avoid the hard-to-predict emergence of a situation that requires more drastic action after the fact,"Lacker said in a speech at the West Virginia Economic Outlook Conference

In the oil patch, U.S.-produced crude was down 10 cents, or 0.2%, to $48.71 per barrel.

The U.S. 10-year Treasury note was slightly higher at 1.653%.

In individual stock news, shares of German bank Deutsche Bank (DB) were trading nearly 2% higher on the New York Stock Exchange. Investors are still awaiting a final agreement and settlement on a fine amount between the U.S. Justice Department and Deutsche Bank related to the bank's alleged questionable business practices related to residential mortgage-backed securities in the run-up to the 2008 financial crisis. DOJ first slapped a $14 billion penalty on Deutsche Bank, but recent reports say the final fine could be much lower, perhaps as low as $5.4 billion, according to an unsourced report from a French news agency.

Stocks in Europe were higher, with the broad Stoxx Europe 600 index up 0.9% and Germany's DAX, which was closed for a holiday Monday, was up 0.8%.

Asian shares were also higher, with Japan's Nikkei 225 closing 0.8% higher and the Hang Seng index in Hong Kong rising 0.5%.