* Debt ceiling deadline draws closer
* Wall St's fear gauge CBOE VIX highest since June
* BlackBerry shares up on interest from strategic buyers
* Indexes off: Dow 0.7 pct, S&P 500 0.6 pct, Nasdaq 0.8 pct
By Angela Moon and Julia Edwards
NEW YORK, Oct 7 (Reuters) - U.S. stocks fell on Monday, extending their two-week decline, as the ongoing U.S. government shutdown kept investors jittery, with no sign politicians were willing to relax positions over the debt ceiling or budget impasse.
But major U.S. stock indexes came off their lows by the afternoon after the Dow Jones industrial average fell more than 150 points.
Reflecting a rise in the level of investor anxiety, the CBOE Volatility index VIX, Wall Street's so-called fear gauge, jumped 8.8 percent to 18.22, its highest since late June.
"Thus far, investors have felt assured that they are watching the re-run of an old cliffhanger movie, but the rising frequency of the replay has instilled a sense of deja-vu," said Andrew Wilkinson, chief economic strategist at Miller Tabak & Co in New York.
"With each political party pointing fingers at the other as the cliff approaches, investors feel not only rising risks brought about by growing uncertainty but also that those risks are becoming less transparent because of the lack of data collection."
With the ongoing stalemate in Washington, trade data on Tuesday and retail sales on Friday are among important economic reports that will not be released if the shutdown continues, Wilkinson said. Last week, non-farm payrolls, construction spending, and factory orders data were not released.
As the U.S. government neared the second week of a shutdown with no end in sight, a deadlocked U.S. Congress also confronted an Oct. 17 deadline to increase the nation's borrowing power or risk default.
In comments on Sunday television political talk shows, neither Republicans nor Democrats offered any sign of impending agreement on either the shutdown or the debt ceiling, and both blamed the other side for the impasse.
The Dow Jones industrial average was down 104.30 points, or 0.69 percent, at 14,968.28. The Standard & Poor's 500 Index was down 10.07 points, or 0.60 percent, at 1,680.43. The Nasdaq Composite Index was down 28.37 points, or 0.75 percent, at 3,779.39.
The S&P 500 has fallen for two weeks and is down nearly 3 percent from its all-time high of 1,725.52 on concerns about the effect of Washington dysfunction on the economy.
Financials and energy sectors were among the worst performers, down 0.9 percent and 0.5 percent, respectively.
U.S.-listed shares of BlackBerry rose 4 percent to $8.00 after sources close to the matter said it is in talks with Cisco Systems, Google Inc and SAP about selling all or part of BlackBerry.