Dollar, global shares pressured; U.S. budget vote weighs

NEW YORK Wed Sep 25, 2013 4:16pm EDT

1 of 8. A man walks through the lobby of the London Stock Exchange August 5, 2011.

Credit: Reuters/Suzanne Plunkett

NEW YORK (Reuters) - The dollar fell and global equities markets continued to struggle on Wednesday as concerns over a potential government shutdown in Washington kept investors cautious, even as another vote looms on raising the U.S. debt ceiling.

The U.S. Senate on Wednesday began advancing a bill to keep the government operating beyond September 30 when funding for this fiscal year runs out, as it cleared away a procedural hurdle that some Republicans had erected.

The Senate unanimously agreed to limit early debate on the measure in the hope of passing a bill by this weekend. But battles over the legislation were expected to continue in both the Senate and the House of Representatives.

A temporary spending measure is needed to keep the government running after the October 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.

The Dow Jones industrial average .DJI was down 60.59 points, or 0.40 percent, at 15,274.00. The Standard & Poor's 500 Index .SPX was down 4.53 points, or 0.27 percent, at 1,692.89. The Nasdaq Composite Index .IXIC was down 7.05 points, or 0.19 percent, at 3,761.21.

It was the fifth consecutive session of losses for the benchmark S&P 500, the first such period for 2013.

The MSCI world equity index .MIWD00000PUS, 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 decision by the Federal Reserve to continue its bond-buying program at a monthly pace of $85 billion.

The pan-European FTSEuro 300 index .FTEU3 was down 0.1 percent.

The dollar was down 0.3 percent at 98.44 yen from late U.S. levels on Tuesday and down 0.3 percent against a basket of six major currencies .DXY.

The euro was firmer against the dollar at $1.3528, up 0.4 percent,, supported by data showing German consumer confidence at a six-year high heading into October.

DEBT LIMIT

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 trigger another economic crisis in a nation still struggling to recover from the 2007-09 recession. Treasury Secretary Jack Lew warned Congress on Wednesday the United States would exhaust its borrowing capacity no later than October 17, when 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 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 at Bank of Tokyo Mitsubishi in London.

U.S. Treasuries have reacted cautiously to the political developments, pushing the yield on the benchmark 10-year note down to 2.62 percent. <US/>

Data on Wednesday on new-home sales and orders for long-lasting manufactured goods supported the outlook for accommodative monetary policy from the Fed.

GERMAN CONFIDENCE

The upbeat German consumer confidence data on Wednesday backed up Tuesday's Ifo business morale survey, pointing to a steady recovery in the euro zone's biggest economy, although the overall picture is mixed after recent weak industrial production numbers and a drop in exports.

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 $7,195 per ton, snapping a three-session losing streak.

Gold rose 0.9 percent to $1,334.24 an ounce, extending Tuesday's gains.

Oil prices initially firmed against a backdrop of signals that long-standing tensions in the Middle East could be easing but then backed off as the New York session progressed.

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.

Still, front-month Brent crude for November delivery fell 0.6 percent to $108.03, while November U.S. crude fell 0.8 percent to $102.33 a barrel.

(Reporting by Nick Olivari; Editing by Nick Zieminski)