* Senate rejects House-approved budget bill; gov't shutdownmore likely
* Major stock indexes end September with solid gains
* Energy, defense sectors hit; Healthcare stocks outperform
* Indexes down: Dow 0.8 pct, S&P 0.6 pct, Nasdaq 0.3 pct
By Angela Moon
NEW YORK, Sept 30 (Reuters) - U.S. stocks closed lower onMonday with just hours to go before a midnight deadline to averta federal government shutdown, but major indexes ended Septemberwith solid monthly gains.
Losses were broad across the board and the declineaccelerated in late trading but the benchmark S&P 500 indexstill ended up 3 percent for the month and 4.7 percent for thequarter. The Nasdaq jumped more than 10 percent for the quarter,its biggest quarterly gain since the first quarter of 2012.
With the law funding thousands of routine governmentactivities set to expire at midnight, U.S. Senate Democratskilled a proposal by the Republican-led House of Representativesto delay Obamacare for a year in return for temporary funding ofthe federal government beyond Monday.
But market participants have grown accustomed to politicalbattles in Washington resulting in a last-minute accord andvoiced skepticism any shutdown would last for an extendedperiod.
"The reason the stock market is not down 10 or 15 percent isbecause people are going, 'I've seen this movie before'," saidJordan Waxman, managing director at HighTower Advisors in NewYork.
Also calming market fears, Standard & Poor's RatingsServices said the debate over raising the U.S. debt limit isunlikely to change the country's sovereign rating as long as itis short-lived. In 2011, similar political tension prompted theloss of the United States' triple-A credit rating.
The Dow Jones industrial average was down 128.57points, or 0.84 percent, at 15,129.67. The Standard & Poor's 500Index was down 10.20 points, or 0.60 percent, at1,681.55. The Nasdaq Composite Index was down 10.12points, or 0.27 percent, at 3,771.48.
For the month, the Dow rose 2.2 percent and the Nasdaq added5.1 percent. For the quarter, the Dow was up 1.5 percent whilethe S&P 500 gained 4.7 percent.
Among the day's decliners, energy shares slumped 0.8percent, in line with a decline in U.S. crude oil prices as thepossible government shutdown stoked demand concerns. Exxon Mobil fell 1 percent to $86.04 while Occidental Petroleum lost 1 percent to $93.54.
Defense names also declined, as a government shutdown wouldmost likely diminish the number of new contracts. LockheedMartin Corp fell 1.3 percent to $127.55 and AlliantTechsystems Inc lost 0.7 percent to $97.56. The PHLXdefense sector lost 0.8 percent.
Some healthcare stocks outperformed the broader marketincluding St. Jude Medical, up 2.4 percent at $53.64 andEdwards Life, up 1.2 percent at $69.63. Boston ScientificCorp was also up 1.9 percent at $11.74.
Some market participants viewed any pullback in equities asa buying opportunity, based on historical performance afterprior shutdowns and the low risk of a steep decline.
Historically, Wall Street has managed to avoid steepdownside during similar incidents. During the federal governmentshutdown from Dec. 15, 1995, to Jan. 6, 1996, the S&P 500 added0.1 percent. During the Nov. 13 to Nov. 19, 1995, shutdown, thebenchmark index rose 1.3 percent, according to data by JasonGoepfert, president of SentimenTrader.com.
But the CBOE Volatility index, often used to measureinvestor anxiety, was up 7.4 percent at 16.60. The index hasrisen more than 19 percent in the last three sessions.
A government shutdown would have wide-ranging implicationsfor most assets. If a deal were reached quickly, markets mightrecover, but a prolonged shutdown could harm the economy andconsumer confidence. While a deal could still be reached beforethe government's fiscal year ends at midnight on Monday, such apossibility was considered unlikely.
Up to 1 million government employees could be furloughedand, if the shutdown takes place, the Labor Department willpostpone its closely-watched monthly employment report scheduledfor Friday.
In a note to clients, Bank of America Merrill Lynch analystSavita Subramanian said the risk of a correction of more than 10percent from the political wrangling is a "low probabilityevent," and "given that valuation, sentiment and fundamentalsremain supportive, we would view such an event as a buyingopportunity."
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