US STOCKS-Futures sharply lower as shutdown appears more likely


* Possibility of budget deal before midnight seen as remote

* Most sectors could be vulnerable, financials at risk

* Major indexes still on track for positive September

* Chinese factory growth sluggish in September

* Futures down: Dow 127 pts, S&P 15.6 pts, Nasdaq 26 pts

By Ryan Vlastelica

NEW YORK, Sept 30 (Reuters) - U.S. stock index futures fellon Monday as a last-minute deal to resolve a budget battle inWashington appeared less likely, increasing the chances of agovernment shutdown.

* The House of Representatives early on Sunday voted for anemergency spending bill that includes a delay of PresidentBarack Obama's signature healthcare reform law despite threatsof a veto from the White House.

* While a deal could be reached before the government'sfiscal year ends at midnight on Monday, the unanimous passage ofa bill to continue paying U.S. soldiers in the event thegovernment runs out of money was viewed as a sign that therewould be no agreement between Republicans, who hold a majorityin the House, and the Democrats, who control the White House andSenate.

* Such a shutdown would have wide-ranging implications for arange of asset classes. If a deal is reached quickly, marketsmight recover, but a prolonged shutdown could have significantimplications for economic growth and consumer confidence.

* Many government employees will be furloughed by theabsence of a deal, and the Labor Department will not issue itsmonthly employment report scheduled for next Friday.

* Essentially all market sectors could see a reaction, withindustries tied to the pace of economic growth - includingenergy and banking - seeing outsized impacts. Even utilities,which are considered a defensive group, may see steep moves if ashutdown impacts interest rates.

* S&P 500 futures fell 15.6 points and were belowfair value, a formula that evaluates pricing by taking intoaccount interest rates, dividends and time to expiration on thecontract. Dow Jones industrial average futures slid 127points and Nasdaq 100 futures lost 26 points.

* The S&P 500 is currently 0.7 percent above its50-day moving average of 1,680.18, a level that has been servingas support, but the index is likely to break below it in theevent of major uncertainty. The next key level is the index's100-day average of 1,659.29, 1.9 percent below current levels.

* Historically, Wall Street has managed to weather similarincidents. During the federal government shutdown from Dec. 15,1995, to Jan. 6, 1996, the S&P 500 added 0.1 percent. During theNov. 13 to Nov. 19, 1995, shutdown, the benchmark index rose 1.3percent, according to data by Jason Goepfert, president

* That precedent may not hold this time given that growthcontinues to lag. Wall Street may also be ripe for a selloffgiven that the S&P is near an all-time high and has seen littlein the way of a sustained pullback this year.

* For the month of September, the Dow is up 3percent, the S&P is up 3.6 percent and the Nasdaq is up5.3 percent.

* Overseas, China's factory sector grew only slightly inSeptember as domestic demand faltered, a private survey showed,an unexpectedly weak outcome that suggests a firm rebound inAsia's economic powerhouse still remains elusive.

* In Europe, a split in Italy's ruling coalition hasheightened the prospects of fresh elections that could delayeconomic reforms. Ten-year Italian government bond yields jumped for a third straight day.

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