Stocks dropped on Tuesday as worries about the health of the global economy and a possible downgrade for U.S. debt sent the S&P 500 crashing through key technical levels in an ominous sign for markets.

Uncertainty over whether a budget deal in Washington does enough to cut deficits, concerns over the recent slew of weak economic data and a sharp selloff in European markets put the S&P 500 on course to close below its 200-day moving average.

"If we get a close below that, 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, the seventh down day for the S&P 500, was broad and deep. All S&P sectors were in the red as were the majority of Dow stocks. The S&P 500 was on track for its longest losing streak since October 2008.

The Dow Jones industrial average dropped 173.88 points, or 1.43 percent, to 11,958.61. The Standard & Poor's 500 index fell 22.52 points, or 1.75 percent, to 1,264.42. The Nasdaq Composite Index lost 50.88 points, or 1.85 percent, to 2,693.73.

Investors seemed to find nothing to cheer after the U.S. Senate agreed to the House-passed deal to raise the debt ceiling because of the possibility it still would not stave off a downgrade of the U.S. government's triple-A rating.

But 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.

"I would have expected to see a (stocks) relief rally almost immediately upon passage in the Senate. It hasn't happened," said Fred Dickson, chief market strategist at The Davidson Cos. in Lake Oswego, Oregon.

"Investors have made the shift from Washington to what I'm calling economic realities," Dickson said.

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

On Monday data on U.S. factories for July suggested the economy was in a stall. The government's key monthly jobs report is due Friday.

Industrial and consumer discretionary shares were among hardest hit, with the S&P industrial and discretionary indexes down more than 2.6 percent.

European debt problems returned to the forefront after French bank BNP Paribas SA 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 and Italy's FTSE MIB, which hit a 27-month low.

(Reporting by Edward Krudy; Editing by Kenneth Barry)

S&P Nyse Dow jones BNP Paribas