* Possibility of budget deal before midnight seen as remote
* All S&P 500 sectors fall, energy and financials drop
* Major indexes still on track for positive September
* Indexes down: Dow 0.9 pct, S&P 0.8 pct, Nasdaq 0.8 pct
By Ryan Vlastelica
NEW YORK, Sept 30 (Reuters) - U.S. stocks fell sharply on Monday as a last-minute deal to resolve a budget impasse in Washington appeared less likely, increasing the chances of a partial government shutdown.
Losses were broad, with all ten S&P 500 sectors lower on the day, led by energy and financials shares. About 80 percent of companies traded on both the New York Stock Exchange and Nasdaq fell.
The House of Representatives early on Sunday voted for an emergency spending bill that includes a one-year delay of President Barack Obama's signature healthcare overhaul despite threats of a veto from the White House.
A shutdown would have wide-ranging implications for a most types of assets. If a deal is reached quickly, markets might recover, but a prolonged shutdown could do significant harm to the economy and consumer confidence. While a deal could still be reached before the government's fiscal year ends at midnight on Monday, such a possibility was considered unlikely.
Up to 1 million government employees could be furloughed by the absence of a deal, and if the shutdown takes place, the Labor Department will postpone issuing its closely watched monthly employment report scheduled for Friday.
"The government is such an important part of the entire economy, between the people it employs and the impact it has on consumer confidence," said Nicholas Colas, chief market strategist at the ConvergEx Group in New York. "The size of the selloff is logical given the stakes."
Energy shares slumped 1.1 percent, dropping alongside a 1.5 percent fall in crude oil prices. Exxon Mobil fell 1.3 percent to $85.79 while Occidental Petroleum sank 1.6 percent to $92.93.
Financial shares were also lower, falling 1 percent. Goldman Sachs dropped 1.8 percent to $156.94 and Citigroup Inc was off 1.7 percent at $48.04.
The Dow Jones industrial average was down 142.57 points, or 0.93 percent, at 15,115.67. The Standard & Poor's 500 Index was down 13.13 points, or 0.78 percent, at 1,678.62. The Nasdaq Composite Index was down 30.16 points, or 0.80 percent, at 3,751.43.
The S&P broke under its 50-day moving average of 1,679.88, which had been serving as support. The next key level is the index's 100-day average of 1,659.29, 1.9 percent below current levels.
Wall Street has managed to weather similar incidents in the past. During the shutdown from Dec. 15, 1995, to Jan. 6, 1996, the S&P 500 added 0.1 percent. During the Nov. 13 to Nov. 19, 1995 shutdown, the benchmark index rose 1.3 percent, according to data by Jason Goepfert, president of SentimenTrader.com.
That precedent may not hold this time, given that economic growth continues to be weak. Wall Street may also be ripe for a selloff, with the S&P near an all-time high and having escaped any sustained pullback this year.
For the month of September, the Dow is up 2 percent, the S&P is up 2.7 percent and the Nasdaq is up 4.4 percent.
The Chicago Purchasing Managers index rose more than expected in September, climbing to 55.7 from 53 in the previous month. Analysts were expecting a reading of 54. The positive data had little lasting impact on the market's gloomy tone.
In company news, Active Network Inc jumped 26 percent to $14.37 after the company said it would be taken private by Vista Equity Partners for $1.05 billion.
Overseas, China's factory sector grew only slightly in September as domestic demand faltered, a private survey showed. It was an unexpectedly weak outcome that suggests a firm rebound in Asia's economic powerhouse remains elusive.
A split in Italy's ruling coalition has heightened the prospects of fresh elections that could delay economic reforms. Ten-year Italian government bond yields jumped for a third straight day.
