NEW YORK — US stocks fell on Monday as a last-minute deal on raising the government's debt ceiling and averting a potentially disastrous default headed for a contentious vote in Congress.
The Dow Jones Industrial Average shed 10.75 points (0.09 percent) to close at 12,132.49.
The broader S&P 500 dropped 5.34 points (0.41 percent) to 1,286.94, while the tech-heavy Nasdaq Composite slumped 11.77 points (0.43 percent) to 2,744.61.
Prices for US Treasury bonds, which are still under the threat of a ratings downgrade, rallied. The yield on the 10-year Treasury dropped to 2.74 percent from 2.81 percent late on Friday, while that on the 30-year bond fell to 4.07 percent from 4.13 percent. (Bond prices and yields move in opposite directions.)
Stocks initially surged on news of the debt-ceiling deal, but then dropped sharply as investors were spooked by a disappointing report on US manufacturing and fears that the agreement might be defeated in Congress.
The US Treasury has said that the government's $14.29 trillion debt ceiling must be raised by Tuesday, or else it could be forced to default on its debts, with potentially calamitous effects on financial markets.
Under the agreement reached late Sunday by President Barack Obama and top lawmakers, the debt limit will be raised by about $2.4 trillion in two steps while Washington also makes deep spending cuts.
Questions have swirled over whether the package would pass the House of Representatives, where both conservative "Tea Party" Republicans and liberal Democrats expressed opposition to it.
Meanwhile, a closely-watched report on US manufacturing added to concerns about the weakness of the world's largest economy.
The US manufacturing sector was flat in July, according to the Institute of Supply Management's indexed survey of purchasing managers.
"The first question investors are trying to answer is: is the current soft patch transitory?" said Hugh Johnson, of Hugh Johnson Advisors.
"The ISM data indicated that the soft patch did not end in July and lasted longer than any of us had imagined."
Shares of Caterpillar, the industrial conglomerate widely seen as an economic bellwether, gained 2.0 percent for the day, while pharmaceuticals giant Merck was down 2.2 percent.