NEW YORK/LONDON – U.S. stocks sank Monday ahead of the government’s partial shutdown, which could lead to an event far worse for the economy — a failure to raise the nation’s borrowing limit.

There is a simple reason why the budget battle — and, more importantly, an upcoming fight over the debt ceiling — are so crucial: The credit of the U.S. is the bedrock that nearly every other investment is built upon, largely due to the assumption that the nation will always pay its debts.

“The concern is government has become so polarized that if it cannot pass (a budget), there’s a greater chance that the debt-ceiling battle will go to the brink or possibly lead to a default,” said Alec Young, global equity strategist with S&P Capital IQ.

The Dow Jones industrial average fell 129 points, or 0.8 percent, to close at 15,129.67. The Standard & Poor’s 500 slid 10 points, or 0.6 percent, to 1,681.55, and the Nasdaq composite dropped 10 points, or 0.3 percent, to end at 3,771.48.

A brief shutdown will not hit the U.S. economy and stock market that hard. But a shutdown lasting two weeks could slice 0.3 percent points off the nation’s gross domestic product, according to a report by Macroeconomic Advisers, because hundreds of thousands of federal workers will go without a paycheck.

“You’re putting a lot of people, at least temporarily, out of work and out of pay, and that will affect spending,” said Kathy Jones, vice president of fixed income strategy at Charles Schwab. “It slows down activity on companies that depend on federal contracts.”

Investors in Europe were also spooked ahead of the shutdown news. The FTSE 100 index of leading British shares fell 0.8 percent to close at 6,462.22 while Germany’s DAX fell 0.8 percent to 8,594.40. The CAC-40 in France ended 1 percent lower at 4,143.44.