Stocks dropped 1 percent on Monday as weaker-than-expected U.S. manufacturing data and uncertainty over the debt deal in Washington left investors wary about the outlook for the economy and the market.

Healthcare stocks, including United Health , were among the worst performers as investors feared the debt-ceiling deal could lead to cuts in Medicare and other federal health programs, analysts said.

Early gains over the deal quickly faded as investors still saw road bumps ahead in tackling the U.S. deficit problem, and as the Institute for Supply Management (ISM) reported the U.S. manufacturing sector grew at the slowest pace in two years in July.

The ISM report also showed new orders contracted.

It was a patched compromise deal, with still a lot of uncertainty, so people don't want to get their hands on this issue. If the deal passes, we've averted the threat of a default, but I always thought that was unlikely, said Carl Kaufman, who helps manage just under $2 billion at the Osterweis Strategic Income fund in San Francisco.

Lawmakers have until Tuesday to come up with a deal to avoid a debt default. They were due to vote later Monday on the White House-backed agreement, which includes spending cuts of $2.4 trillion over 10 years.

Even though a default was considered unlikely by many investors, the threat of a credit rating downgrade continued to weigh on sentiment after Wall Street's worst week in a year last week.

The Dow Jones industrial average <.DJI> was down 128.97 points, or 1.06 percent, at 12,014.27. The Standard & Poor's 500 Index <.SPX> was down 15.04 points, or 1.16 percent, at 1,277.24. The Nasdaq Composite Index <.IXIC> was down 33.63 points, or 1.22 percent, at 2,722.75.

The S&P health care index <.GSPA> fell 2.5 percent, leading losses among S&P 500 sectors.

Shares of United Health were down 6.2 percent at $46.53 while shares of Humana Inc dropped 4.3 percent to $71.36, despite Humana reporting a higher-than-expected second-quarter profit.

Among other health-care stocks, shares of Pfizer
were down 1.8 percent at $18.90.

(Additional reporting by Ryan Vlastelica; Editing by Kenneth Barry)