GLOBAL MARKETS-Stocks rise after U.S. shutdown; gold, bonds slump

Tue Oct 1, 2013 11:42am EDT

* Dollar slides to near 8-month low vs major currencies

* Impasse raises U.S. debt ceiling concern

* Gold, Treasuries fall as investors see U.S. shutdown as temporary

By Wanfeng Zhou

NEW YORK, Oct 1 (Reuters) - Stock markets worldwide climbed on Tuesday while safe-haven gold and Treasury bonds tumbled on expectations that the first partial shutdown of the U.S. government in 17 years would be temporary.

The dollar slipped to a near eight-month low against major currencies on concern the shutdown would further delay the U.S. Federal Reserve's plans to start scaling back its monetary stimulus.

Congress missed a midnight deadline to agree on a spending bill, resulting in up to 1 million workers being put on unpaid leave. If Congress can agree on a new funding bill soon, the shutdown would last days rather than weeks, with relatively little impact on the world's largest economy.

"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."

MSCI's world equity index, which tracks shares in 45 countries, rose 0.6 percent to 384.46.

The Dow Jones industrial average gained 52.22 points, or 0.35 percent, at 15,181.89. The Standard & Poor's 500 Index was up 11.70 points, or 0.70 percent, at 1,693.25. The Nasdaq Composite Index was up 34.22 points, or 0.91 percent, at 3,805.70.

Shares plummeted on Monday as the deadline approached without any apparent progress in breaking the stalemate. However, some market participants viewed any pullback as a buying opportunity, and Monday's deepest losses were trimmed.

"The market has taken this into account and while the big question is how long this will last, it isn't as though we're going to fall every day the shutdown continues," said Rex Macey, chief investment officer at Wilmington Trust in Atlanta, Georgia.

Europe's broad FTSEurofirst 300 index gained 0.6 percent to 1,254.88, extending a stellar performance in the September quarter.

The political crisis fueled concerns about whether Congress can meet a crucial mid-October deadline to raise the government's $16.7 trillion debt ceiling. Some Republicans have vowed to make that conditional on defunding President Barack Obama's healthcare reforms, as they did with the spending bill.

"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.

The benchmark 10-year U.S. Treasury note fell 5/32, yielding 2.634 percent as traders reduced their safe-haven bond holdings on expectations the standoff would be resolved soon.

Gold slid below $1,300 per ounce to its lowest since early August, unwinding much of the gain built up before the shutdown. Spot gold fell to $1,295 an ounce from $1,326.94.

AVOID DOLLARS

Fitch Ratings reiterated on Tuesday that a partial shutdown of the U.S. government is not itself a trigger for downgrading its AAA sovereign credit rating, but does undermine confidence in the budget process and raises concerns over whether the debt ceiling will be raised to meet U.S. financial obligations.

If the debt ceiling is not raised in time, Fitch said a formal review of the AAA rating "with potentially negative implications" would be triggered, even though it believes U.S. Treasury securities will be honored in full and on time.

The dollar fell against a basket of six currencies and was last down 0.1 percent at 80.128. 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 $1.3531, up 0.1 percent. The dollar traded at 98.11 yen, down 0.1 percent.

The dollar pared most 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.

"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 release of the government's report on construction spending in August, which had been scheduled for 10 a.m, was delayed because of the shutdown. If no deal is reached by Friday, the closely watched payroll report will also be delayed.

A report on private sector hiring in September by payrolls processor Automatic Data Processing will be released on Wednesday at 8:15 a.m. (1215 GMT).

Oil prices edged lower on concern that a shutdown of the U.S. government will crimp demand, while easing tensions in U.S.-Iran nuclear talks boosted prospects for an increase in supply. Brent crude fell $1.26 to $107.11 a barrel. U.S. crude lost 91 cents to $101.42.

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.