Stocks, commodities off after data, rate threat

NEW YORK Mon Aug 1, 2011 6:51pm EDT

U.S. dollar notes are seen in this picture illustration taken at the Bank of Taiwan in Taipei November 11, 2010. REUTERS/Nicky Loh/Files

U.S. dollar notes are seen in this picture illustration taken at the Bank of Taiwan in Taipei November 11, 2010.

Credit: Reuters/Nicky Loh/Files

NEW YORK (Reuters) - Stocks and commodities fell on Monday on weak factory data, but pared losses toward the end of the day on renewed hopes lawmakers in Washington may approve a hike in the U.S. debt ceiling.

The Swiss franc soared and the U.S. dollar rallied against the euro, with demand for safe-haven currencies set to continue on concerns about a slowing economy and a possible cut of the United States' triple-A credit rating.

U.S. stocks swung from a 1 percent gain at the open to a 1 percent slide after the Institute for Supply Management's July manufacturing index hit its lowest in two years. Reflecting the market's uncertainty, the blue-chip Dow index ended almost flat.

U.S. oil prices fell 0.5 percent while copper dropped 1.5 percent on the weak ISM data and a firmer dollar.

Congressional leaders scrambled for enough support from skeptical lawmakers to push through a last-minute deal to raise the U.S. borrowing limit and avert a debt default. Voting was expected later on Monday or Tuesday morning, and Vice President Joe Biden predicted passage.

"There is more confidence that the bill will get through (Congress) tonight," said Elliot Spar, market strategist at Stifel, Nicolaus & Co in Shrewsbury, New Jersey.

The non-partisan Congressional Budget Office confirmed that the debt deal would reduce budget deficits by at least $2.1 trillion over 10 years.

The deal "doesn't help the economy, and if we have a continued slowdown the deficit will be larger," said Carl Kaufman, who helps manage nearly $2 billion at the Osterweis Strategic Income fund in San Francisco. "Add to that the fact that it isn't a certainty this goes through, and it's not a certainty we won't get downgraded."

The Dow Jones industrial average .DJI dipped 10.75 points, or 0.09 percent, to 12,132.49. The Standard & Poor's 500 Index .SPX fell 5.34 points, or 0.41 percent, to 1,286.94. The Nasdaq Composite Index .IXIC lost 11.77 points, or 0.43 percent, to 2,744.61.

World stocks as measured by MSCI .MIWD00000PUS fell 0.45 percent with emerging market shares .MSCIEF up 0.8 percent.

U.S. dollar-denominated Nikkei futures were little changed.

The plan to avert a U.S. default must be passed by both houses of Congress and will still face some opposition. The Treasury faces a Tuesday deadline after which it would have to stop paying some of its bills.

There remained widespread assumption that ratings agencies could downgrade U.S. Treasuries from their vaunted triple-A status, a move that would impact the valuation of numerous other assets.

"The risk of a possible credit downgrade remains on the table as the spending cuts may not go far enough to convince rating agencies that Washington is serious about getting its fiscal house in order," said Omer Esiner, chief market analyst at Commonwealth Foreign Exchange in Washington.

Still, the cost of insuring U.S. debt with credit default swaps fell.

SWISS FRANC RALLIES, EURO SLIDES

The dollar and euro hit record lows against the Swiss franc, while the single currency lost 0.7 percent versus the greenback. Against the yen, the U.S. currency was last down 0.25 percent at 77.19 after earlier hitting a more-than-4-month low that heightened fears of intervention from Tokyo.

"The markets are unsure about how this will play out and it is down to the wire, so the market is cautious right now," said Jessica Hoversen, FX analyst at MF Global in New York.

Gold futures edged 0.6 percent lower to $1,619.10 an ounce.

In bond markets, benchmark U.S. Treasuries rose 12/32 in price to yield 2.75 percent after the weak data, down from 2.82 percent earlier Monday and 2.80 percent late on Friday.

(Reporting by Rodrigo Campos; additional reporting by Karen Brettell, Lucia Mutikani, Wanfeng Zhou and Julie Haviv; Editing by Dan Grebler)

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