NEW YORK (AP) -- Stocks drifted lower Monday as investors worried about the strength of the economy and the potential for a budget fight in Washington.
The Dow Jones industrial average was down in early afternoon trading, extending two straight days of losses.
The Dow set an all-time high last Wednesday after the Fed decided to keep its huge economic stimulus program intact. But that rally has been wiped out by anxiety over a budget and debt fight in Washington.
The U.S. House of Representatives voted to defund President Barack Obama's health care law on Friday, a gesture that reminded Wall Street that the Republican-led House and the Democratic-controlled Senate are poised for a showdown over spending.
The debt ceiling must be raised by Oct. 1 to avoid a government shutdown, and a potential default on payments, including debt, later in the month.
"There seems to be a higher probability there will be more of a battle over that," said Scott Wren a senior equity strategist at Wells Fargo Advisors. "That could inject some volatility into the market."
On Monday, the S&P 500 index dropped eight points, or 0.5 percent, to 1,701 as of 1:28 p.m. (1728 GMT). The Dow fell 40 points, or 0.3 percent, to 15,410. The Nasdaq composite fell 11 points, or 0.3 percent, to 3,763.
Financial stocks fell the most among the 10 industrial groups in the S&P 500 index. Investors sold on concerns that earnings would be hurt by lower trading volumes of bonds and foreign currencies at investment banks.
Citigroup fell $1.54, or 3 percent, to $49.64 after the Financial Times reported that the bank had suffered a "significant decline" in trading revenues that would crimp its earnings. Goldman Sachs, which began trading on the Dow Monday, also fell. The stock slipped $4.16, or 2.5 percent, to $165.60.
Fed stimulus has helped push stocks to record levels this year and investors last week cheered its surprise decision to keep its stimulus in place. The central bank said the economy wasn't strong enough for it to pull back on its bond-buying program.
William Dudley, the president of the Fed's New York branch, said Monday that any changes to the bank's stimulus must be based on the most recent measures of economic health, according to a Reuters report.
The Fed is buying $85 billion in bonds each month to hold down long-term interest rates and encourage borrowing and spending. While investors initially cheered the decision to keep up the stimulus, the Fed's concern that the economy is still weak may now be weighing on investor's minds, said Kate Warne, an investment strategist at Edward Jones, a financial advisor.
"At first blush (the stimulus) looks positive, but at second blush it says conditions weren't as strong as we were previously thinking," said Warne. "Markets are now responding to that, rather than the fact that the stimulus is continuing for longer."
Apple rose the most in the S&P 500 after shoppers snapped up 9 million of its newest iPhones following a rollout of the devices on Friday. Apple surged $19.18, or 4 percent, to $486.53
Trading in the shares of troubled smartphone maker Blackberry were suspended after financial company Fairfax Financial Holdings offered to buy the company in a deal valued at $4.7 billion.
Along with Goldman Sachs, Nike and Visa began trading on the 30-member Dow on Monday, replacing Alcoa, Bank of America and Hewlett-Packard.
The Standard and Poor's 500 index is up 19 percent for the year. If the index closed the year at its current level it would log its best return since 2009, when it rose 23 percent.
In government bond trading, the yield on the 10-year Treasury note fell to 2.71 from 2.74 percent.
In commodities trading, the price of oil fell $1.31, or 1.3 percent, to $103.44 a barrel. The price of gold fell $5, or 0.4 percent, to $1,327.40 an ounce.
The dollar rose against the euro and fell against the Japanese yen.
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