Reuters

* S&P 500 turns negative for year

* S&P closes below 200-day moving average

* Global growth fears weigh on stocks

* Dow off 2.2 pct, S&P off 2.6 pct, Nasdaq 2.8 pct

* For up-to-the-minute market news see [STXNEWS/US] (Updates to close)

By Edward Krudy

NEW YORK, Aug 2 (Reuters) - The S&P 500 turned negative for the year on Tuesday as the wrangling over the U.S. debt ceiling faded and investors turned their attention to the stalling economy.

The broad-based index fell for a seventh day and crashed through the key 200-day moving average in an ominous sign for markets. The seven days of losses mark the longest losing streak since October 2008.

“It is going to be a long week,” said Jim Maguire Jr., a NYSE floor trader at E.H. Smith Jacobs. “The bid is not here in the market.”

The selloff accelerated into the close as volume jumped well above average. The fall was broad-based, with four stocks falling for every one rising on the New York Stock Exchange.

The index also broke through its 2-1/2 year uptrend line from its bear market low in March 2009. Thursday was the index’s worst day in a year.

For a graphic on the S&P 500 see, graphic r.reuters.com/dug92s.

Investors seemed to find little to cheer after the U.S. Senate agreed to a deal to raise the debt ceiling because of the possibility it will not stave off a downgrade of the U.S. government’s triple-A rating.

“Investors have made the shift from Washington to what I’m calling economic realities,” said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

Composite volume on the NYSE, the Amex and the Nasdaq reached 9.5 billion shares, well above this year’s daily average of around 7.5 billion.

The Dow Jones industrial average .DJI dropped 265.87 points, or 2.19 percent, to 11,866.62. The Standard & Poor’s 500 Index .SPX dropped 32.89 points, or 2.56 percent, to 1,254.05. The Nasdaq Composite Index .IXIC dropped 75.37 points, or 2.75 percent, to 2,669.24.

Shortly after the vote, Fitch Ratings said the agreement to raise the U.S. borrowing capacity means the risk of a sovereign default is “extremely low” and commensurate with a AAA rating. But it warned Washington must reduce its debt or face a downgrade. For details, see [ID:nN1E77114G]

Industrial and consumer discretionary shares were among hardest hit, with the S&P industrial and discretionary indexes .GSPI .GSPD down more than 3 percent.

A government report showed U.S. consumer spending fell unexpectedly in June for the first decline in nearly two years as incomes barely rose. [ID:nN1E7710A7]

On Monday a survey on U.S. factory activity suggested manufacturing stalled in July. The survey followed similarly weak reports from Asia and Europe and came after U.S. growth calculations were sharply cut for the first half of the year.

The government’s key monthly jobs report for July is due on Friday and will be closely watched by investors.

European debt problems returned to the forefront after French bank BNP Paribas SA (BNPP.PA) took a $768.3 million write-down linked to Greece’s debt woes.

European shares hit their lowest close in 11 months, with selling concentrated on Spain’s IBEX .IBEX and Italy’s FTSE MIB .FTMIB, which hit a 27-month low.

Drug company Pfizer Inc (PFE.N) reported a second-quarter profit that beat expectations by a penny and affirmed its full-year profit view. Shares of the Dow component fell 4.6 percent to $18.14. (Reporting by Edward Krudy; Editing by Kenneth Barry)

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