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NEW YORK (Reuters) - Stocks fell on Thursday and could be in line for more weakness as worries about Washington's ability to find a timely solution to the "fiscal cliff" dominate investor thinking in coming weeks. The S&P 500 dropped for a second day and closed below its 200-day moving average for the first time in five months. The moving average is a measure of the market's long-term trend, and a significant break through that level would be seen as a sign of weakness. Just minutes before the closing bell, stocks accelerated their declines and the S&P 500 fell more than 1 percent.

McDonald's Corp (MCD) shares fell 2 percent to $85.13 after the world's largest hamburger chain reported its first monthly drop in global sales since March 2003. The stock's weakness hurt the Dow, which fell through its 200-day moving average on Wednesday. Apple (AAPL) shares sank for a second day. The stock fell 3.6 percent to $537.75 and is down more than 20 percent from its September 21 all-time intraday high of $705.07. The Dow Jones industrial average (^DJI) lost 121.41 points, or 0.94 percent, to end at 12,811.32. The Standard & Poor's 500 Index (^GSPC) fell 17.02 points, or 1.22 percent, to 1,377.51, ending at its lowest level since August 2. The Nasdaq Composite Index (^IXIC) dropped 41.70 points, or 1.42 percent, to close at 2,895.58.

Since reaching a 52-week closing high of 1,465.77 on September 14, the S&P 500 has dropped 6 percent. On Wednesday, a day after Democratic President Barack Obama defeated Republican Mitt Romney in the U.S. election, the benchmark S&P 500 dropped more than 2 percent for its biggest one-day percentage decline since June 1. Investors worry that if no deal is reached in Congress over some $600 billion in spending cuts and tax increases due to take effect early next year, the struggling U.S. economy could fall into recession.

While a comprehensive agreement to avoid the automatic spending cuts and tax increases of the "fiscal cliff" was possible, a more likely scenario is for political leaders to find a temporary fix to buy time until the new Congress and Obama are sworn in, which will occur in January. The prospect of haggling over the budget has deepened the uncertainty for investors, who have sold stocks on the expectation taxes will go up on capital gains and dividends. "That's really what investors have been reacting to these last two days," said Zaro. "It is this worry about the fiscal cliff and the ability of politicians to come to a solution."

Because of those worries, the market is likely to keep challenging support levels in the coming weeks, he said. On the data front, the U.S. government reported a better-than-expected drop in weekly first-time claims for unemployment benefits as well as a rise in U.S. exports. While that news supported stock futures early in the U.S. trading day, it was soon overshadowed by the U.S. fiscal worries.
During the regular session, volume was roughly 6.9 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, compared with the year-to-date average daily closing volume of 6.52 billion. Decliners outnumbered advancers by a ratio of about 3 to 1 on both the NYSE and the Nasdaq.