* Government fails to come to debt agreement, futures sink
* Lack of deal seen overshadowing corporate earnings
* Futures down: Dow 111 pts, S&P 11.1 pts, Nasdaq 28.5 pts
* For up-to-the-minute market news see [STXNEWS/US]
By Ryan Vlastelica
NEW YORK, July 24 (Reuters) - U.S. stock index futures fell sharply on Sunday as failure so far by the government to strike a deal on the debt ceiling made the prospect of default -- once considered an impossible outcome -- more likely.
Congress and the White House remained at odds over an agreement and U.S. House Speaker John Boehner pulled out of talks with President Barack Obama, killing hopes for a weekend deal, as had been widely expected.
Concerns that a deal would not be forthcoming have been an equity headwind in recent sessions, though some positive earnings news helped offset the issue. Major indexes notched solid gains last week, with the S&P and Nasdaq rising more than 2 percent.
White House Chief of Staff Bill Daley over the weekend warned there would be a "few stressful days" ahead for financial markets, with the deadline to lift the $14.3 trillion U.S. borrowing limit only nine days away. For details, see [ID:nN1E76M0B0]
Futures opened more than 1 percent lower, though the Dow and S&P modestly pared losses. The initial reaction as Asian financial markets opened was mild with the euro gaining against the dollar in early trading. The dollar fell to a four-month low against the Japanese yen.
"The longer we go without a deal, the more you're going to see concerns on the negative side," said Alan Lancz, president of Alan B. Lancz & Associates Inc, an investment advisory firm based in Toledo, Ohio.
"I don't think the initial reaction was overdone at all. This has to get behind us before the market can trend higher."
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Full coverage of U.S. budget and debt [nUSBUDGET] Possible outcomes for U.S. debt talks [nN1E76I10Y] Anything possible if U.S. downgraded [nN1E76I1M8] Markets holding feet to fire on default threat [nN1E76N068] Wall St, companies brace for default [nN1E76L1Y2] Insider update on debt talks: http://link.reuters.com/mat72s S&P and debt ceiling graphic: http://r.reuters.com/nan72s ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
S&P 500 futures
Though time remains for a deal to be struck, the lack of an agreement was expected to be the primary driver for stocks this week.
"This will offset any positive earnings or corporate news," said Lancz, adding that his firm had raised cash positions lately as a result of the uncertainty.
"If we don't see progress by Wednesday, there could be a situation where no one is stepping up to buy."
Companies scheduled to report quarterly results on Monday
include Texas Instruments Inc