U.S. stock index futures fell sharply on Sunday as failure so far by the government to strike a deal on the debt ceiling made the prospect of default -- once considered an impossible outcome -- more likely.
Congress and the White House remained at odds over an agreement and U.S. House Speaker John Boehner pulled out of talks with President Barack Obama, killing hopes for a weekend deal, as had been widely expected.
Concerns that a deal would not be forthcoming have been an equity headwind in recent sessions, though some positive earnings news helped offset the issue. Major indexes notched solid gains last week, with the S&P and Nasdaq rising more than 2 percent.
White House Chief of Staff Bill Daley over the weekend warned there would be a "few stressful days" ahead for financial markets, with the deadline to lift the $14.3 trillion U.S. borrowing limit only nine days away.
Futures opened more than 1 percent lower, though the Dow and S&P modestly pared losses. The initial reaction as Asian financial markets opened was mild with the euro gaining against the dollar in early trading. The dollar fell to a four-month low against the Japanese yen.
"The longer we go without a deal, the more you're going to see concerns on the negative side," said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo, Ohio.
"I don't think the initial reaction was overdone at all. This has to get behind us before the market can trend higher."
S&P 500 futures fell 11.1 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration on the contract. Dow Jones industrial average futures sank 111 points and Nasdaq 100 futures lost 28.5 points.
Though time remains for a deal to be struck, the lack of an agreement was expected to be the primary driver for stocks this week.
"This will offset any positive earnings or corporate news," said Lancz, adding that his firm had raised cash positions lately as a result of the uncertainty.
"If we don't see progress by Wednesday, there could be a situation where no one is stepping up to buy."
Companies scheduled to report quarterly results on Monday include Texas Instruments Inc (TXN.N), Kimberly-Clark (KMB.N) and Anadarko Petroleum Corp (APC.N).