GLOBAL MARKETS-Dollar, shares remain weak on U.S. budget concern
* World shares hold near one-week low
* German consumer confidence hits six-year high
* Oil above $109 as little thaw seen in U.S./Iran relations
NEW YORK, Sept 25 (Reuters) - The dollar fell and global equities markets struggled on Wednesday as concerns over a potential government shutdown in Washington kept investors on edge.
A vote is due in the U.S. Senate on a motion that will allow the government to keep running beyond the end of the month when budgets are due to expire, though lawmakers have yet to find enough common ground to ensure its passage.
A temporary spending measure would keep the government running after the Oct. 1 start of the new budget year.
"The government is creating uncertainty, weighing somewhat on the markets," said Doug Cote, chief market strategist at ING U.S. Investment Management in New York.
"I see some volatility over the next month due to our democratic process and politics, but once it is clear, this market is going higher," he said.
U.S. shares reversed earlier losses to trade higher as New York trading approached the midway point, but investors cautioned that the rise may simply reflect buying after four days of mostly losses.
The Dow Jones industrial average was up 33.81 points, or 0.22 percent, at 15,368.40. The Standard & Poor's 500 Index was up 3.30 points, or 0.19 percent, at 1,700.72. The Nasdaq Composite Index was up 9.62 points, or 0.26 percent, at 3,777.87.
The MSCI world equity index, which tracks shares in 45 countries, was down 0.1 percent. It is down more than 1 percent from highs reached in the rally that immediately followed last week's unexpected decision by the Federal Reserve to continue its bond-buying program at a monthly pace of $85 billion.
The pan-European FTSEuro 300 index was down 0.1 percent, mirroring losses earlier in Asia, where MSCI's broadest index of Asian shares outside Japan slipped 0.2 percent.
The dollar was flat at 98.72 yen from late U.S. levels on Tuesday and down 0.1 percent against a basket of six major currencies.
The euro was firmer against the dollar at around the $1.35 level, supported by data showing German consumer confidence was running at a six-year high heading into October.
While concerns about the U.S. budget talks were foremost in keeping the dollar under pressure, traders were also focused on the looming talks on raising the government's borrowing limit, a measure needed to avoid the risk of a debt default.
Any default would rock Wall Street and could even trigger another economic crisis in a nation still struggling to recover from the 2007-09 recession. U.S. Treasury Secretary Jack Lew warned Congress on Wednesday that the United States would exhaust its borrowing capacity no later than Oct. 17, at which point the government would have only about $30 billion in cash on hand.
Lew made the estimate in a letter to congressional leaders in which he urged them to move swiftly to raise the nation's $16.7 trillion debt limit. "If the government should ultimately become unable to pay all of its bills, the results could be catastrophic," he wrote.
The U.S. House of Representatives could vote as early as Friday on legislation to raise the government's borrowing authority, Republican leadership aides said on Wednesday.
The last debt ceiling showdown, in 2011, pushed the United States to within days of missing payments and led ratings agency Standard and Poor's to strip Washington of its triple-A credit rating.
"There is a deep reluctance to buy dollars until the picture around the debt ceiling becomes clearer," said Derek Halpenny, European head of global currency research.
U.S. Treasuries have reacted cautiously to the political developments, holding steady with the yield on the benchmark 10-year note at 2.65 percent, near a six-week low.
Data on Wednesday on new-home sales and orders for long-lasting manufactured goods supported the outlook for accommodative monetary policy from the Fed.
The upbeat German consumer confidence data on Wednesday backed up Tuesday's Ifo business morale survey in pointing to a steady recovery in the euro zone's biggest economy, although after recent weak industrial production numbers and a drop in exports the overall picture is mixed.
Ten-year cash German yields fell 2 basis points to 1.77 percent, after comments from European Central Bank officials this week that the ECB stood ready to pump another round of money into banking markets if need be.
On commodity markets, steady buying from top consumer China pushed copper futures up 0.7 percent to $7,1975, putting them on track to snap a three-session losing streak.
Gold rose 0.7 percent to $1,332 an ounce, extending Tuesday's gains.
Oil prices firmed against a backdrop of hopeful signals that long-standing tensions in the Middle East could be easing.
President Barack Obama on Tuesday cautiously embraced overtures from Iran's new president as the basis for a possible nuclear deal, but a failed effort to arrange a simple handshake between the two leaders underscored entrenched distrust that will be hard to overcome.
"There are some hopes there might be a gradual forging of a relationship between the West and Iran, though it's still early days," said Ric Spooner, chief market analyst at CMC Markets.
Front-month Brent crude for November delivery rose about 0.7 percent to $109.38, while November U.S. crude added 0.3 percent to $103.38 a barrel.
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