NEW YORK CITY (AFP) - United States stocks sank and short-term bond yields jumped on Tuesday as the stalemate in Washington over passing a budget and raising the debt ceiling took a deeper toll on financial markets.

Investors sold off a wide range of high-flying tech stocks especially as President Barack Obama toughened his line on negotiating with Republicans, saying he would not bow to extortion.

The Dow Jones Industrial Average fell 159.71 (1.07 per cent) to 14,776.53.

The broad-based S&P 500 sank 20.67 (1.23 per cent) to 1,655.45, while the tech-rich Nasdaq Composite Index plummeted 75.54 (2.00 per cent) to 3,694.83.

Investors also sold off short term bonds, sending the yield on the one month Treasury note to 0.31 per cent, its highest level since 2008, up from 0.15 per cent Monday.

That reflected growing nervousness about the potential for the government to default on some obligations if the debt ceiling is not hiked by Oct 17.

"Given that there's nothing but animosity coming from Washington, people are selling off," said Michael James of Wedbush Securities.

"If we can't get an agreement on the government shutdown, it's much more likely we can't reach an agreement on the much more serious debt ceiling, and if that's the case, that would be very, very negative for our markets and worldwide markets."

Mr Mace Blicksilver, director of Marblehead Asset Management, said some investors opted to cash out of major Nasdaq tech stocks that have risen significantly in recent months.

"Investors are concerned that if this thing lingers on, you can have a more general sell-off," Mr Blicksilver said.

Facebook was lost 6.7 per cent, LinkedIn 6.1 per cent, Netflix 5.0 per cent and Yahoo 3.5 per cent.

Financial equities also continued to suffer, including JPMorgan Chase (-1.9 per cent), Visa (-2.0 per cent), and Citigroup (-1.1 per cent).

Within the Dow, only three stocks rose: Walmart (+1.4 per cent), Procter & Gamble (+0.9 per cent) and Coca-Cola (+0.6 per cent).

Department-store chain JC Penney ticked 0.8 per cent higher after reporting "solid progress" in its turnaround efforts.

September comparable-store sales fell 4.0 per cent compared with last year, but the decline was an improvement over the drop in the previous month.

The yield on the 10-year US Treasury edged up to 2.64 per cent from 2.63 per cent late Monday, while the 30-year held steady at 3.70 per cent. Prices and yields move inversely.