* Britain, France, Arab League say chemical attacks cannot
* NYSE, Nasdaq at odds over cause of last week's Nasdaq
* Indexes down: Dow 0.90 pct, S&P 1.26 pct, Nasdaq 1.79 pct
By Chuck Mikolajczak
NEW YORK, Aug 27 (Reuters) - U.S. stocks dropped on Tuesday
on rising geopolitical tensions over the possibility of a
military strike against Syrian President Bashar al-Assad's
forces for a chemical weapons attack against civilians.
A number of nations and groups, including Britain, France,
Canada and the Arab League, joined the United States in urging a
firm response to Assad's government and said the world shouldn't
stand by as chemical weapons are used.
Western sources who attended a meeting in Istanbul between
envoys of an alliance opposed to Assad and the Syrian National
Coalition said "action to deter further use of chemical weapons
by the Assad regime could come as early as in the next few
Defense Secretary Chuck Hagel said U.S. military forces in
the region are "ready to go" should President Barack Obama order
action against Syria.
Russia's support of Assad in the fighting raises the stakes
for financial markets, traders said.
"This is the largest geopolitical risk since the start of
the Iraq war," said Michael O'Rourke, chief market strategist at
JonesTrading in Greenwich, Connecticut.
"I am not saying it will escalate to that point, but this
war of words with Russia is the first time the U.S. is pitted
against another global (power) in a long time. That creates an
uncertainty this market is not accustomed to."
The Dow Jones industrial average fell 135.06 points
or 0.9 percent, to 14,811.4, the S&P 500 lost 20.83
points or 1.26 percent, to 1,635.95 and the Nasdaq Composite
dropped 65.469 points or 1.79 percent, to 3,592.102.
The White House expects to release a public version of a
formal report by the U.S. intelligence community on last week's
chemical weapons attack in Syria, spokesman Jay Carney said.
Oil prices rose more than 3 percent on the possibility of a
wider conflict that could destabilize the Middle East.
A potential economic headwind for the market is the need to
raise the federal government's borrowing authority soon. U.S.
Treasury Secretary Jack Lew said it was essential for Congress
to raise the borrowing limit by mid-October or the country will
Investor nervousness was reflected in a jump of more than 18
percent in the CBOE volatility index in the last two
Gold prices touched a 15-week peak and prices of U.S.
Treasuries rose as the geopolitical tension sparked a flight to
The benchmark S&P 500 index is down 2.9 percent in August,
putting it on track for its worst monthly performance since May
U.S. regulators have asked Nasdaq OMX Group and
NYSE Euronext to come up with a timeline of Thursday's
three-hour trading disruption, but the rival exchange operators
have been unable to agree on the details, according to several
sources familiar with the situation
Shares of J.C.Penney advanced 0.8 percent to $13.46
a day after hedge fund manager William Ackman, the biggest share
holder, said he had sold his entire stake after his campaign to
overhaul the retailer failed.
Goldman Sachs lost tens of millions of dollars after
a computer glitch led to a flood of erroneous options trades
last week, a source close to the matter said on Monday. Goldman
shares fell 2.2 percent to $154.47.
Shares of Tiffany & Co's dipped 2.4 percent to
$79.74 as strong sales in China and higher prices made up for
some disappointing business at home in the latest quarter.