* No end in sight to U.S. government shutdown
* Surprisingly weak U.S. private jobs report also weighs
* Euro at 8-month high; ECB holds rates, Italian crisis eases
By Herbert Lash
NEW YORK, Oct 2 Global equity markets and the dollar fell on Wednesday as the U.S. government shutdown entered its second day and as data showed U.S. private employers added fewer jobs than expected last month.
Although equities rose on Tuesday on hopes the first partial shutdown of the U.S. government in 17 years would be short-lived, one day later concerns about the economic impact grew as no signs emerged of an end to the budget standoff in Washington.
Market volatility will likely increase the longer the shutdown persists. Investors are also looking for an indication of how negotiations play out over the looming need to raise the government's debt ceiling. The debt ceiling is far more important, as it could lead to an unprecedented default by the United States, though that is considered unlikely.
"There's a sense that the debate isn't going to end soon. Yesterday's rally was driven by a hope this wouldn't last, but that hope is diminishing," said Oliver Pursche, president of Gary Goldberg Financial Services in Suffern, New York.
Data showing U.S. private employers added 166,000 jobs in September, below forecasts for 180,000 new jobs, added to investor jitters. The private-sector report has taken on added significance this week because the government shutdown means that the monthly payrolls report due out on Friday from the Labor Department may be delayed.
"If the numbers had come up really, really strong, perhaps people would overlook the problems in Washington. But with the numbers coming in slightly below expectations, it renews concern that the recovery could start to peter out," said Rick Meckler, president of hedge fund LibertyView Capital Management LLC in Jersey City, New Jersey.
MSCI's world equity index, which tracks shares in 45 countries, fell 0.25 percent to 383.64 points, one day after gaining 0.7 percent.
The Dow Jones industrial average was down 89.44 points, or 0.59 percent, at 15,102.26. The Standard & Poor's 500 Index was down 5.15 points, or 0.30 percent, at 1,689.85. The Nasdaq Composite Index was down 7.70 points, or 0.20 percent, at 3,810.28.
In Europe, the FTSEurofirst 300 index of top regional shares ended 0.7 percent lower at 1,247.14 points, while the euro zone's blue-chip Euro STOXX 50 index was down 0.5 percent at 2,918.31 points.
The dollar fell on expectations the shutdown will further delay the Federal Reserve's plans to scale back its asset-purchase program.
The head of the Federal Reserve Bank of Boston, Eric Rosengren, said on Wednesday that the government shutdown could further delay cuts to the bond-purchase program because of the lack of official data on the economy.
The dollar index, which tracks the greenback against six major currencies, fell as low as 79.781, its lowest level since February. It was last trading at 79.906, down 0.29 percent.
Safe-haven U.S. government debt prices rose. The benchmark 10-year U.S. Treasury note rose 7/32 in price to yield 2.6245 percent.
The cost of insuring U.S. government bonds against default for the next year also rose, gaining 5 basis points to raise the cost of protecting $10 million of debt to $35,000 - the highest since Aug. 31 and above the rate for five-year insurance.
Because it usually costs more to buy longer-term default insurance, the current level is considered a classic sign of credit stress, reflecting the concerns over whether the United States will be able to raise the federal government's debt limit in coming weeks.
The euro rose 0.43 percent to $1.3582, after having hit $1.3606, its highest level since February. The European Central Bank left interest rates unchanged, holding off any fresh policy action while it waits to see whether the fragile euro zone recovery strengthens.
A confidence vote for Italian Prime Minister Enrico Letta's government ended fears that the euro zone's third-largest economy would be forced into fresh elections, adding to the currency's appeal.
Italian shares and bonds both rose as it become clear that former Prime Minister Silvio Berlusconi would drop his attempts to bring down the government, sending Milan's FTSE MIB share index up as much as 1.8 percent, before closing 0.7 percent higher.
U.S. crude futures led the oil complex higher following a report that construction of Trans-Canada's Gulf Coast pipeline would be completed by the end of the month.
Brent crude for November rose $1.25 to settle at $109.19 a barrel. U.S. crude settled $2.06 higher at $104.10 a barrel.