Wall Street drops on possible action against Syria

By Chuck Mikolajczak

NEW YORK (Reuters) - U.S. stocks fell on Tuesday as geopolitical tensions flared on the possibility of an impending military strike against Syrian President Bashar al-Assad's forces in response to a chemical weapons attack against civilians last week.

Western sources who attended a meeting in Istanbul between envoys of an alliance opposed to Assad and the Syrian National Coalition said "action to deter further use of chemical weapons by the Assad regime could come as early as in the next few days.

Adding to the rising tension, Defense Secretary Chuck Hagel said in a television interview with the BBC the U.S. military forces in the region are "ready to go" should President Barack Obama order action against Syria.

"All the bad news is on the breakfast plate this morning in terms of the escalation in Syria, debt ceiling negotiations - there is just not a lot of good news today," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

U.S. Treasury Secretary Jack Lew said it was essential for Congress to raise the government's borrowing limit by mid-October or the country will face an unprecedented default, and warned the administration would not allow for it to be used as political leverage.

"The price action, despite the fact stocks are getting slammed, to this point has been pretty encouraging in that it didn't develop into a rout, it's just had an adjustment from yesterday's events," said Hellwig.

U.S. Secretary of State John Kerry on Monday laid the groundwork for possible action against Assad's government, calling for accountability over what he called a "moral obscenity."

Investor nervousness was reflected in a jump of more than 15 percent on the CBOE volatility index <.VIX> in the last two days.

Oil prices rose nearly 3 percent on the possibility Western involvement could spark a wider conflict and destabilize the Middle East.

The U.N. Security Council has been deadlocked on Syria since 2011. Russia and China have vetoed three resolutions condemning Assad and calling for punitive steps against his government.

Gold prices touched a 15-week peak and prices of U.S. Treasuries rose as the geopolitical tension sparked a flight to safer investments.

The Dow Jones industrial average fell 91.74 points or 0.61 percent, to 14,854.72, the S&P 500 lost 15.34 points or 0.93 percent, to 1,641.44 and the Nasdaq Composite dropped 44.561 points or 1.22 percent, to 3,613.01.

On Wall Street, five days after a glitch that paralyzed Nasdaq-listed stocks for three hours on all U.S. markets, rivals Nasdaq OMX and NYSE Euronext have a different understanding of what happened in the period preceding and during the blackout, with each side blaming the other for the outage, according to sources.

Shares of J.C.Penney climbed 3.4 percent to $13.80 a day after hedge fund manager William Ackman, the biggest share holder, said he had sold his entire stake after his campaign to overhaul the retailer failed.

Goldman Sachs lost tens of millions of dollars after a computer glitch led to a flood of erroneous options trades last week, a source close to the matter said on Monday. Goldman shares fell 1.6 percent to $155.43.

Shares of Tiffany & Co's strong sales in China and higher prices made up for some disappointing business in its home market in the latest quarter.

Data showed U.S. single-family home prices rose in June, though the pace of gains slowed slightly, while consumer confidence rose in August, beating expectations as consumers' outlook for the future improved.

(Reporting by Chuck Mikolajczak; Editing by Chizu Nomiyama)