GLOBAL MARKETS-Dollar, bonds fall after U.S. shutdown; stocks up
* Dollar slides to near 8-month low vs major currencies
* U.S. shutdown raises debt ceiling concern; Treasuries fall
* Gold falls as investors see shutdown impact temporary
By Wanfeng Zhou
NEW YORK, Oct 1 (Reuters) - The U.S. dollar weakened to a near eight-month low and Treasury bonds fell on Tuesday after the U.S. government began a partial shutdown for the first time in 17 years, but stock markets worldwide mostly shrugged off the news and edged higher.
Oil slipped on worries the shutdown will crimp demand. But some investors saw the standoff as likely temporary and drove safe-haven gold prices lower.
Congress missed a midnight deadline to agree on a spending bill, resulting in up to 1 million workers being put on unpaid leave. Republicans and Democrats continued a bitter blame game, each side shifting responsibility to the other in efforts to redirect a possible public backlash.
The impasse raised concern over whether Congress can meet a more important deadline in mid-October to raise the debt-ceiling limit. It could further delay the U.S. Federal Reserve's plans to start scaling back its monetary stimulus.
"People expect this will be relatively short-term, with the impact hopefully minimal, but the longer it goes on, the more pressure Washington will face," said Robert Pavlik, chief market strategist at Banyan Partners LLC in New York.
"If this lasts longer than a few days, you'll really start to see volatility pick up."
The dollar bore the brunt of the shutdown news, hitting 79.864, a near 8-month low against a basket of six currencies . It also slipped to a 1-1/2 year low against the safe-haven Swiss franc.
The euro rose to an 8-month high and last traded at $1.3538, up 0.1 percent. The dollar traded at 98.17 yen, little changed on the day.
It pared losses after the release of stronger-than-expected U.S. manufacturing data. The sector last month expanded at its fastest pace in almost 2-1/2 years, an industry report showed, while firms added the most workers in 15 months.
Another industry report, however, showed U.S. manufacturing grew at its slowest clip in three months in September.
The government's report on construction spending in August, which had been scheduled for 10 a.m, has been delayed.
"We do not know how long this impasse in the U.S. will last. If it persists, there is a chance it will hurt economic growth and affect chances of Fed tapering," said Daragh Maher, strategist at HSBC. "In the short term, it's better to avoid the dollar."
The Dow Jones industrial average gained 6.20 points, or 0.04 percent, to 15,135.87. The Standard & Poor's 500 Index rose 5.53 points, or 0.33 percent, to 1,687.08. The Nasdaq Composite Index added 17.34 points, or 0.46 percent, to 3,788.82.
MSCI's world equity index, which tracks shares in 45 countries, rose 0.3 percent to 383.30, helped by gains in Asia.
Europe's broad FTSEurofirst 300 index gained 0.2 percent to 1,248.99 points, extending a stellar performance in the September quarter.
"The U.S. shutdown is a central point for the markets, but as long as the hope for just a temporary shutdown exists, it will not be a strong burden for equities," said Christian Stocker, equity strategist at UniCredit.
The benchmark 10-year U.S. Treasury note fell 4/32, yielding 2.628 percent.
The bigger issue facing investors is the implications of the political dysfunction in Washington for this month's negotiations on raising the U.S. government's $16.7 trillion borrowing limit, needed to avoid a default on its debt mountain.
"The real focus for markets is Oct. 17 when the debt ceiling issue will come to the fore again," said Richard Lewis, head of global equities at Fidelity Worldwide Investment.
"This is going to be much more important because a failure to extend the debt ceiling would stop coupon payments on bonds, creating a technical default that would cause a riot in bond markets," he said in a note.
Brent crude fell 65 cents to $107.72 a barrel, not far from a 7-week low. U.S. crude lost 63 cents to $101.70.
Spot gold fell to $1,295 an ounce from $1,326.94.
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