NEW YORK: US stocks suffered hefty losses on Thursday as the partial government shutdown dragged through a third day and worries climbed that the budget battle could escalate into a debt default.

The Dow Jones Industrial Average dropped 136.66 points (0.90 percent) to 14,996.48. The broad-based SandP 500 fell 15.21 points (0.90 percent) to 1,678.66, while the tech-rich Nasdaq Composite Index tumbled 40.68 points (1.07 percent) to 3,774.34.

While the shutdown has fuelled jitters, analysts have generally expressed even deeper concerns about the October 17 deadline to raise the debt ceiling.

International Monetary Fund chief Christine Lagarde warned that a US failure to raise the ceiling could wreak havoc on the global economy, while the Treasury Department said a default could have a "catastrophic" effect on the economy.

The comments likely raised the anxiety of some investors, said Jack Ablin, chief investment officer of BMO Private Bank.

But Ablin said swings of 400 and 500 points occurred during the last big fight on the debt ceiling in 2011. "As we close in on the deadline, we could see heightened levels of volatility," he said.

Ablin also cited "somewhat disappointing" data from the Institute for Supply Management. The ISM reading on non-manufacturing activity fell to 54.4 percent in September, down 4.2 points from August.

Within the Dow, some of the biggest losses came from industrial companies, including Boeing, down 2.2 percent, and Chevron and DuPont, both down 2.1 percent.

Dow component United Technologies lost 1.2 percent after the defence contractor warned that it could be forced to furlough thousands of workers as soon as next week due to the federal government shutdown.

Electric car company Tesla dropped 4.2 percent after an Internet video of a fire on one of its vehicles went viral, stoking concerns about the safety of the cars.

Pharmaceutical giant Eli Lilly sank 3.4 percent after the company said it will return to revenue growth and expanding margins after 2014. At an investor presentation, the company reaffirmed its near-term financial benchmarks and promised US$5 billion in additional share repurchases "over time."

Beverage distributor Constellation Brands advanced 3.2 percent after earnings of 96 cents per share bested expectations by 8 cents and the company said its integration of recent acquisitions was on track. -- AFP