By Sue Chang and Anora Mahmudova, MarketWatch

Deutsche Bank losses weigh on financials

Wall Street stocks slumped Monday as investors awaited the first U.S. presidential debate and worries over Germany's Deutsche Bank weighed on the financial sector.

The S&P 500 index dropped 14 points, or 0.7%, to 2,149 with financials down 1% to lead the laggards.

The Dow Jones Industrial Average was down 146 points, or 0.8%, to 18,115. Goldman Sachs Group, Inc.(GS) topped the losers while Apple Inc.(AAPL) and Chevron Corp.(CVX) were the two gainers among the 30 blue-chip stocks.

The Nasdaq Composite Index declined 42 points, or 0.8%, to 5,263.

Presidential debate worries: Politics were playing a big role in rattling investors ahead of Monday's U.S. presidential debate between Democratic nominee Hillary Clinton and her Republican rival Donald Trump.

Read:How the Clinton-Trump debate showdown carries potential to sock stocks (http://www.marketwatch.com/story/clinton-trump-debate-showdown-carries-potential-to-sock-stocks-2016-09-24)

"There are conflicting poll numbers and some showing that Mr. Trump is gaining on Hillary Clinton and that is weighing on markets. However, it's also worries over Deutsche Bank that hit European bourses and are spilling over to Wall Street," Ryan Larson, head of equity trading at RBC Global Asset Management.

See:How Deutsche Bank woes are stressing out the U.S. stock market (http://www.marketwatch.com/story/how-deutsche-bank-woes-are-stressing-out-the-us-stock-market-2016-09-26)

"The stock market is positioned for a likely Clinton presidency but as polls show narrowing gap between contenders and as we get closer to the election day, you will see markets reprice," Larson said.

Larson said it takes time for markets to fully price in an outcome of the election.

A national poll conducted by Bloomberg Politics shows Trump with a two-point lead (http://www.marketwatch.com/story/on-eve-of-debate-trump-pulls-ahead-in-a-national-poll-2016-09-26) over Clinton when factoring in third-party candidates.

Erik Nielsen, group chief economist at UniCredit Research, in a note to clients said he was "amazed" that markets aren't more unsettled by opinion polls showing the election outcome remains difficult to guess.

"[Monday], we'll get the first TV debate, and while it'll be too early to conclude too much from it (remember Obama's dreadful performance in his first debate with Romney), if the probability of a Trump victory increases in coming weeks, then you need to start questioning the Fed's intentions for December, and you'll want to reduce your exposure to, particularly, U.S. equities and the dollar," Nielsen said.

The foreign exchange market is also likewise not fully pricing in the political risks, according to Bank of America Merrill Lynch.

"As the polls now suggest a much narrower gap between the two candidates, we feel even stronger about our concerns. We believe the outcome of the U.S. elections will be the main determinant of how the rest of the year and next year will evolve in markets, while short-term and long-term implications can be very different," Athanasios Vamvakidis, currency analyst at Bank America Merrill Lynch, said in a report.

Clinton and Trump will face off for the first of three debates at 9 p.m. Eastern at Hofstra University in Hempstead, N.Y., in what Goldman Sachs has billed as the "biggest match-up since the Mayweather/Pacquiao bout (http://www.marketwatch.com/story/wall-street-starts-to-raise-alarm-bells-over-the-possibility-of-a-trump-presidency-2016-09-26)"--a much-hyped 2015 boxing match.

Heavy losses for Deutsche Bank took a toll on European markets and pressured U.S. financial shares. U.S.-listed shares of Deutsche Bank(DBK.XE) (DBK.XE) fell 5.7%, after Germany's Focus Magazine reported over the weekend that Chancellor Angela Merkel wouldn't support state aid for the bank. The bank denied it had asked for any support, according to a report from Dow Jones Newswires, and the government also dismissed the report.

Crude-oil futures recovered (http://www.marketwatch.com/story/oil-prices-attempt-a-rebound-as-hopes-rise-for-production-deal-2016-09-26) on renewed hopes that the Organization of the Petroleum of Exporting Countries and other major oil producers, including Russia, might make progress on a deal to limit production. The producers will meet on the sidelines of an energy conference in Algeria Wednesday.

U.S. crude futures rose more than 3%.

Economic docket:Sales of newly-constructed homes slipped less than expected in August (http://www.marketwatch.com/story/new-home-sales-stay-stronger-than-expected-as-demand-buoys-a-firmer-pace-of-building-2016-09-26), pointing to some stabilization in a normally choppy market as demand remained strong. Stocks maintained losses after the data release.

On the policy front, Federal Reserve Gov. Daniel Tarullo will give a speech on the "next steps in the evolution of stress testing" at Yale School of Management Leaders Forum in New Haven, Conn., at 11:45 a.m. Eastern. A short while later, Dallas Fed President Rob Kaplan will appear in a moderated question and answer session at 1:30 p.m. Eastern.

Stocks to watch: The market appears to have second thoughts about CBOE Holdings Inc.'s (CBOE) plan to acquire Bats Global Markets Inc. (BATS) in a deal valued at $3.2 billion. BATS shares surged nearly 20% on Friday when the news of takeover surfaced, but are 3.7% lower Monday. CBOE shares slumped 4%.

Shares of Chemtura Corp. (CHMT) soared 16% after German specialty chemical company Lanxess AG (LXS.XE) (LXS.XE) said it plans to buy the Philadelphia-based rival (http://www.marketwatch.com/story/lanxess-to-buy-chemtura-in-27-billion-chemical-company-merger-2016-09-25) in a deal with an enterprise value of around $2.7 billion.

Twitter Inc. shares (TWTR) were off 3%, giving up some of the huge gains after last week's report that the online social media provider was talking with a number of potential suitors (http://www.marketwatch.com/story/why-a-salesforce-deal-to-go-after-twitter-makes-no-sense-2016-09-24), including Salesforce.com Inc. (CRM).

(CRM)Pfizer Inc. (PFE) slipped 1.6% after the pharmaceutical group said it would not split into two separate, publicly traded entities (http://www.marketwatch.com/story/pfizer-decides-against-splitting-into-two-companies-2016-09-26).

Shares of Smith & Wesson Holding Corp. (SWHC) slumped more than 7% after the gun maker disclosed in a filing that its bid to make replacements for the U.S. Army's standard M9 sidearm was denied (http://www.marketwatch.com/story/smith-wessons-stock-slumps-after-missing-out-on-us-army-deal-2016-09-26).

(CRM)Other markets: Deutsche Bank's losses were driving the Stoxx Europe 600 index (http://www.marketwatch.com/story/european-stocks-face-worst-day-in-almost-3-months-as-oil-deutsche-bank-shares-slump-2016-09-26) to its worst day in nearly three months, with the index sharply lower.

The Nikkei 225 index (http://www.marketwatch.com/story/asian-markets-drop-on-global-oil-worries-2016-09-25) fell 1.3% as the Japanese yen pushed higher against the U.S. dollar. The dollar (http://www.marketwatch.com/story/dollar-gives-back-some-against-the-yen-2016-09-26) last traded at Yen100.35, against Yen101.035 seen late Friday in New York.

Bank of Japan Gov. Haruhiko Kuroda on Monday said there is "no limit to monetary policy" (http://www.marketwatch.com/story/bojs-kuroda-ready-to-cut-rates-deeper-into-negative-territory-2016-09-26) in his first speech since last week's decision by the Japanese central bank to overhaul its stimulus program. He said the BOJ would use "every possible policy tool" to get to its 2% inflation goal, according to media reports.

See: Bank of Japan's big move isn't dispelling fears that central banks are out of ammo (http://www.marketwatch.com/story/bank-of-japans-big-move-isnt-dispelling-market-fears-that-central-banks-are-out-of-ammo-2016-09-24)

Gold futures (http://www.marketwatch.com/story/gold-eases-from-multimonth-high-as-focus-turns-to-us-presidential-debate-2016-09-26) rebounded to trade up 0.2%, while the dollar, as gauged by the ICE U.S. Dollar Index , slipped 0.3%.

--Barbara Kollmeyer contributed to this report.

(END) Dow Jones Newswires

September 26, 2016 12:58 ET (16:58 GMT)