US STOCKS-Dow, S&P 500 extend recent slide, down 4th session

* Washington's budget squabbles expected to spark volatility

* Applied Materials (NasdaqGS: AMAT - news) shares rise on merger with Tokyo Electron

* Facebook (NasdaqGS: FB - news) leads Nasdaq on report it could be allowed in China

* Dow down 0.4 pct, S&P down 0.3 pct; Nasdaq up 0.1 pct

By Caroline Valetkevitch

NEW YORK, Sept 24 (Reuters) - The Dow and S&P 500 ended lower on Tuesday, extending their recent slide to a fourth session as worries over a possible U.S. government shutdown added to investor caution.

Though uncertainty remains over the Federal Reserve's intentions to scale back its stimulus since the central bank's decision last week to leave its current program unchanged, some of the focus for now has turned to Capitol Hill.

Tea Party-backed U.S. senators, threatening to stall a bill to fund the U.S. government, ran into a wall of resistance from top Senate Republicans, including Minority Leader Mitch McConnell.

The market's recent losses mark the longest losing streak since last month for the S&P 500, which has been down every session since rallying 1.2 percent last Wednesday on the Fed announcement.

"We sort of had that blowup day to the upside after the Fed announcement, and in the absence of any economic validation to support the market going higher, it suggests we're waiting for some macro event," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia, which manages about $58 billion in assets.

"I think the overarching influence is the fact that we're marching toward the resolution date and the consequences of the debt ceiling."

Banks were the biggest negatives for the S&P 500 for a second day, with shares of JPMorgan Chase down 2.2 percent at $50.32 and shares of Wells Fargo (Other OTC: WFCNO - news) down 1.4 percent at $41.73. A federal judge rejected Wells Fargo's bid to dismiss a U.S. government lawsuit accusing the nation's largest mortgage lender of fraud.

The Dow Jones industrial average was down 66.79 points, or 0.43 percent, at 15,334.59. The Standard & Poor's 500 Index was down 4.42 points, or 0.26 percent, at 1,697.42. The Nasdaq Composite Index was up 2.97 points, or 0.08 percent, at 3,768.25.

Helping the Nasdaq were shares of Facebook, which rose 2.7 percent to $48.45. The South China Morning Post reported the online social media giant and other websites deemed sensitive and blocked by the Chinese government will be accessible in a planned free-trade zone in Shanghai. In addition, Citigroup (NYSE: C - news) upgraded the stock to a "buy" rating.

In Washington, the refusal by Senate Republican leaders to go along with the Tea Party did not remove the chance of a government shutdown. Signs still pointed to a frantic last-minute showdown that will determine whether the U.S. government stays open next week. Republicans want to cancel funding for "Obamacare," President Barack Obama's healthcare law.

While many on Wall Street expected an eventual government shutdown to be short and not affect markets deeply, volatility is expected.

The concern overshadowed the day's economic news, which included data showing U.S. home prices rose 0.6 percent in July on a seasonally adjusted basis, while another report showed a dip in consumer confidence this month.

Still, shares of homebuilders rose, with earnings results boosting Lennar (NYSE: LEN - news) , which gained 4.3 percent to $36.01 after the No. 3 U.S. homebuilder reported a better-than-expected quarterly profit. KB Home (NYSE: KBH - news) rose 4.3 percent to $17.76, also after results.

The PHLX housing sector index climb 1.5 percent.

Among other gainers, shares of Applied Materials jumped 9.1 percent to $17.45 after the chipmaker and Tokyo Electron Ltd said they will merge in an all-stock deal, creating a $29 billion company.

Volume totaled about 6 billion shares traded on the New York Stock Exchange, the Nasdaq and the NYSE MKT, below the average daily closing volume of about 6.3 billion this year.

Since the market was higher for much of the session, advancers beat decliners on both the NYSE and the Nasdaq by about 1.2 to 1.