Stocks pulled back from their some of their losses in afternoon trading after the New York Times reported that House Speaker John Boehner told his party that he wouldn't let the nation default. The newspaper attributed the news to an unnamed House Republican.
Lawmakers must periodically raise the nation's borrowing limit to keep U.S. funds flowing, but the once-routine matter has become a bargaining chip in battles over the federal budget deficit.
Despite the slump during the last two weeks, stocks are still close to the record levels they reached last month. The S&P 500 is up 17 percent so far this year, having climbed as much as 21 percent by Sept. 18.
A four-year bull-market for stocks has been sustained by a recovery in the housing market, improving hiring and resilient corporate earnings. Unprecedented economic stimulus from the Federal Reserve has also supported the market.
Some analysts said that investors should take advantage of any decline further price declines and add to their holdings of stocks.
"The probability of the debt ceiling not being raised and the probability of the U.S. defaulting are about as close to zero as you can possibly get," said Scott Wren, a senior equity strategist at Wells Fargo Advisors. "I hope the market takes the bait and we get more of a sell-off here, it's just an opportunity."
The dollar dropped against the euro and the Japanese yen, continuing a recent slide. The dollar index, which measures the U.S. currency against a group of other major currencies, has declined for five days.
The Labor Department said Thursday it will not release the highly anticipated September jobs report on Friday because the government remains partly shut down.
In government bond trading, the yield on the 10-year Treasury note fell to 2.61 percent from 2.62 percent Wednesday.
Among stocks making big moves:
— Tesla Motors fell $7.64, or 4.2 percent, to $173.31 after the electric car company had a rare downgrade from a financial analyst and on news of a fire involving one of its cars.
— HCP fell $1.95, or 4.7 percent, to $39.82 after the real estate investment trust fired James F. Flaherty as its chairman and CEO.
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