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* Government shutdown enters third day, no end in sight
* Shutdown may delay Fed ability to gauge need for stimulus
* Jobless claims seen rising; Sept ISM services index on tap
* Futures down: Dow 38 pts, S&P 3.1 pts, Nasdaq 5.5 pts
By Ryan Vlastelica
NEW YORK, Oct 3 (Reuters) - U.S. stock index futures fell onThursday amid lingering market uncertainty as a partial U.S.government shutdown extended to a third day and leaders inCongress showed no sign of progress towards resolving thestalemate.
The situation in Washington has pressured equities, with theS&P 500 having dropped in eight of the past 10 sessions.While a short-term government closure is expected to have alimited effect on the U.S. economy, the impact will be greateras the deadlock continues, with market volatility expected tospike.
President Barack Obama met with Republican and Democraticleaders in Congress late Wednesday to try to break the budgetdeadlock that has shut down wide swaths of the government, butthere was no breakthrough and both sides blamed each other.Obama's healthcare law was at the center of the impasse.
"We're supposed to pick stocks, and trying to decide howpolitical figures will negotiate is not Wall Street's strongsuit. That's a very uncomfortable situation to be in," said KimForrest, senior equity research analyst, Fort Pitt Capital Groupin Pittsburgh.
Because of the shutdown, up to 1 million Federal employeeswere put on furlough, and the release of government economicdata - including potentially the key payroll report scheduledfor release on Friday - has been delayed. A Federal Reserveofficial said the impasse could delay the central bank's abilityto assess whether its monetary stimulus efforts are stillneeded.
Investors are also watching the situation for what it couldmean for the higher-stakes battle over the government'sborrowing power, which is expected to come to a head soon. TheTreasury has said the United States will exhaust its borrowingauthority no later than Oct. 17. If no deal is reached onraising the debt ceiling, the U.S. could default on its debt.
"In the short term, this uncertainty could cause a lot ofdisruption," said Forrest, "but if you have a longer-term timeframe, this might be a positive. We thought the market hadgotten ahead of itself, so this could be a chance to get in."
S&P 500 futures fell 3.1 points and were below fairvalue, a formula that evaluates pricing by taking into accountinterest rates, dividends and time to expiration on thecontract. Dow Jones industrial average futures fell 38points and Nasdaq 100 futures lost 5.5 points.
Despite the recent declines, buyers have come in as the S&Papproached its 50-day moving average of 1,679.99. The movingaverage represents a measure of the near-term trend in themarket and often investors will buy in clusters at such levels.
The CBOE Volatility index, used to measure investoranxiety, rose 6.8 percent to 16.60. The index has gained morethan 25 percent over the past two weeks.
Weekly jobless claims are scheduled for release at 8:30 a.m.EDT (1230 GMT) and are seen rising by 8,000 to 313,000 in thelatest week. The Institute for Supply Management's Septemberread on the services sector will be released at 10:00 a.m. andis seen dipping to 57.4 from 58.6 in the previous month.
Constellation Brands Inc shares rose 3 percent to$60 before the bell, after reporting its second-quarter results.
BP Plc won a legal reprieve in its effort to forcethe administrator of a settlement, relating to the 2010 Gulf ofMexico oil spill, to tighten standards in assessing claims,potentially sparing the oil company billions of dollars of extracosts. U.S. shares rose 0.6 percent to $42.37 inpremarket trading.
Otsuka Holdings Co's $886 million bid for AstexPharmaceuticals Inc has run into opposition from anactivist shareholder who says the deal significantly undervaluesthe U.S. biotech firm - a charge that Astex has denied.
