Stocks dipped on Monday in a somewhat muted reaction to the political jousting in Washington, even after lawmakers failed to meet a weekend deadline to reach a debt deal.

But declining stocks outnumbered advancing shares on both the NYSE and Nasdaq, indicating that investors remained cautious. On the NYSE decliners outweighed advancers by nearly 3 to 1, while on the Nasdaq, decliners beat advancers by more than 2 to 1.

U.S. lawmakers were locked in a standoff on Monday over dueling debt plans that offered little prospect for compromise, just over a week before the August 2 deadline to raise the $14.3 trillion debt ceiling and avert a debt default. The United States risks the loss of its coveted triple-A credit rating.

A lot of confusion, a lot of bickering back and forth and maybe some brinkmanship here, said Stephen Massocca, managing director at Wedbush Morgan in San Francisco.

But at the other day, no matter what the ratings agency says, no matter what anybody says, people think the U.S. government is going to be good for it. And ultimately people think there will be some sort of band-aid slapped on this at a minimum.

The Dow Jones industrial average <.DJI> dropped 32.85 points, or 0.26 percent, to 12,648.31. The Standard & Poor's 500 Index <.SPX> dropped 2.13 points, or 0.16 percent, to 1,342.89. The Nasdaq Composite Index <.IXIC> dropped 0.33 points, or 0.01 percent, to 2,858.50.

Reflecting investor anxiety, the CBOE Volatility Index <.VIX> climbed nearly 8.6 percent, its biggest percentage increase in two weeks.

The uncertainty over the debt ceiling pushed gold prices to record highs as the fear of a default raised the appeal of the bullion versus the greenback. The dollar fell to a record low against the Swiss franc, while gold hit a new high.

In company news, U.S.-listed shares of Research In Motion Ltd were off 3.6 percent to $26.90 after the BlackBerry maker said it will cut about 11 percent of its workforce as it struggles to compete against Apple Inc and Google Inc .

Earnings continued to pour in. Kimberly-Clark Corp shed 1.4 percent to $66.92 after the maker of Kleenex tissues and Huggies diapers said 2011 profits may be at the low end of its forecast, even as second-quarter income topped expectations.

Through Monday morning, 154 S&P 500 companies had reported quarterly results, with 75 percent topping estimates, according to Thomson Reuters data.

Also unsettling investors on Monday, credit rating agency Moody's cut Greece's sovereign debt further into junk territory and said it was almost certain to slap a default tag on its debt as a result of the new EU rescue package. Greece has the lowest rating of any country in the world covered by Moody's.

Volume was light with about 3.04 billion shares traded on the New York Stock Exchange, NYSE Amex and Nasdaq, below the daily average of 7.45 billion.

(Reporting by Chuck Mikolajczak; editing by Leslie Adler)

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