GLOBAL MARKETS-Dollar, stocks fall as U.S. spending deadline nears
* Chance of U.S. government shutdown hangs over markets
* Dollar slides broadly, most major world stock indexes lower
* Oil falls in choppy trade
By Herbert Lash
NEW YORK, Sept 27 (Reuters) - Global equity markets fell and the dollar hit a 7-1/2-month low against the safe-haven Swiss franc on Friday as the prospect of a shutdown of U.S. government operations next week and a possible debt default several weeks later unsettled investors.
Washington braced for a partial shutdown on Oct. 1 as Congress tackled an emergency spending bill that Republicans want to use to achieve Tea Party-backed goals, such as defunding the new healthcare reform law.
As expected, the Senate passed a bill to fund government operations from Oct. 1 to Nov. 15 and sent it to the House of Representatives, where Republicans are considering attaching items that could block the emergency funding.
"As this deadline approaches, investors are stepping up their sale of dollars on the growing concern that a government shutdown will undermine the quality of U.S. assets and lead to a retrenchment in U.S. growth," said Kathy Lien, managing director at BK Asset Management in New York.
Congress also faces the hard task of raising the limit on federal borrowing authority, which Republicans also are targeting for controversial add-ons.
Without a debt limit increase by Oct. 17, Treasury Secretary Jack Lew has warned, the United States would have a difficult time paying creditors and operating the government.
The cost of insuring against a U.S. default rose to its highest since May in the thinly traded market for credit default swaps.
Investors would have to pay about $31,750 to insure $10 million worth of Treasuries against default in five years, up from $22,000 a week ago.
Andre Bakhos, managing director at Janlyn Capital LLC in Bernardsville, New Jersey, said that as the weekend approaches, tensions were mounting over the haggling in Washington.
"Until there's greater visibility, the market is going to be choppy and erratic," Bakhos said.
The dollar fell against both the yen and the euro, as well as the safe-haven Swiss franc. The dollar index was down 0.32 percent to 80.267 against a basket of other major currencies.
Most major stock indexes fell, with the exception of Brazil's Bovespa index, which rose slightly. The benchmark S&P 500 and Dow were on track for their first weekly drop in four.
MSCI's all-country world equity index fell 0.18 percent, and the FTSE Eurofirst 300 index of leading European shares fell 0.23 percent to close at 1,254.59.
The Dow Jones industrial average was down 85.16 points, or 0.56 percent, at 15,243.14. The Standard & Poor's 500 Index was down 8.58 points, or 0.51 percent, at 1,690.09. The Nasdaq Composite Index was down 9.48 points, or 0.25 percent, at 3,777.95.
Sterling rose to $1.6137 against the dollar after Bank of England Governor Mark Carney was quoted as saying he saw no need for more bond-buying by the central bank given signs of recovery in the British economy.
The remarks helped push the dollar lower.
Economic data was mixed.
U.S. consumer sentiment slid in September to its lowest in five months as consumers saw higher interest rates and sluggish economic growth ahead, a survey showed.
The Thomson Reuters/University of Michigan's final reading on the overall index on consumer sentiment slipped to 77.5 in September from 82.1 in August, the lowest final reading since April.
U.S. household spending rose in August, however, as incomes were buoyed by solid wage gains, suggesting growing momentum in the U.S. economy despite months of reduced government spending.
American families spent 0.3 percent more last month than the month before, in line with the median forecast in a Reuters poll, Commerce Department data showed.
U.S. Treasuries prices rose on concerns about the implications of a U.S. government shutdown.
Benchmark 10-year Treasury notes were up 9/32, their yields easing to 2.6136 percent.
Brent crude oil fell in volatile trading, marking its third straight weekly loss, as diplomatic strides on Iran's nuclear program and Syria's chemical weapons drained the geopolitical risk premium from the markets.
Brent crude oil for November settled down 58 cents at $108.63 a barrel.
U.S. crude futures for delivery in November fell 16 cents to settle at $102.87 a barrel.
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