GLOBAL MARKETS-Stocks head for weekly loss on budget woes; dollar nears lows

Fri Oct 4, 2013 10:52am EDT

* Dollar edges higher, but not far off eight-month low
    * Wall Street, Europe shares higher but sentiment fragile
    * U.S. new-year CDS hits highest since August, 2011

    By Wanfeng Zhou
    NEW YORK, Oct 4 (Reuters) - Major stock markets edged higher
on Friday but were headed for a second week of losses while the
dollar hovered near an eight-month low on fears the budget
standoff in Washington will drag on until a crucial deadline to
raise the country's debt limit.
    U.S. shares rose in early trading, although major indexes
were on track for a week of steep losses as a partial government
shutdown entered its fourth day and appeared likely to drag on
for another week or more. 
    While selling has been orderly so far, investors see
volatility rising if the shutdown becomes prolonged, which will
hurt the economic recovery and fuel fears about the $16.7
trillion U.S. debt ceiling. Treasury Secretary Jack Lew has said
the government will hit the limit no later than Oct. 17.
    The cost of insuring one-year U.S. government bonds against
default rose 7 basis points to 58 bps on Friday, hitting the
highest level since August 2011, according to Markit. Top
international policymakers have warned that a failure to raise
the U.S. debt ceiling would be a serious blow to the world
economy. 
    "If there's no agreement by the end of next week, the
concern will really become greater and the impact will be more
pronounced," said Kate Warne, investment strategist at Edward
Jones in St. Louis. Warne helps oversee $670 billion in assets.
    MSCI's world equity index, which tracks
shares in 45 countries, edged up 0.2 percent, but was on track
for a weekly loss of 0.6 percent.
    Despite the latest retreat, many long-term investors believe
Congress will eventually resolve the budget issues, which would
ensure that any stock pullback would be followed by a rebound.
    "Day by day, people are getting more tense," said Francois
Savary, chief investment officer at Swiss firm Reyl. "But we are
betting on the fact that a deal will be found, and this should
provide us with the opportunity to increase our equity
exposure."
    The Dow Jones industrial average gained 48.16 points,
or 0.32 percent, to 15,044.64. The Standard & Poor's 500 Index
 rose 7.43 points, or 0.44 percent, to 1,686.09. The
Nasdaq Composite Index added 23.55 points, or 0.62
percent, to 3,797.89.
    European shares rose 0.3 percent to 1,246.84
points.
    Dennis Lockhart, president of the Federal Reserve Bank of
Atlanta, said the shutdown would hurt growth in the last quarter
of this year, while the Bank of Japan said an extended U.S.
budget standoff would have a severe global impact.
    More Fed officials are due to speak later in the day.
    The debt ceiling issue is considered more severe than the
government shutdown as it could result in a default on U.S. debt
if no resolution is reached to increase it. On Thursday, the New
York Times reported that House Speaker John Boehner told
colleagues he would not let the United States default on its
debt.
    
    The U.S. shutdown delayed the closely watched nonfarm
payrolls data for September, normally due on Friday and a key
factor in Federal Reserve deliberations on when to scale back
its stimulus. The postponement had no noticeable market impact.
    The dollar rose for the first time in six days. It
gained 0.3 percent to 79.972 against a basket of major
currencies. The euro slipped 0.3 percent to $1.3582. The
dollar had hit an eight-month low on Thursday on views that the
government shutdown will further delay the Fed's plans to scale
back stimulus.
    The benchmark 10-year U.S. Treasury note was down 7/32, its
yield at 2.639 percent. Growing worries about a U.S.
government default lifted the interest rates on ultra short-term
U.S. Treasury bills to their highest levels in over 10 months.
    Brent crude oil edged toward $110 a barrel as a tropical
storm approached the oil-producing regions around the U.S. Gulf,
but concerns over a prolonged U.S. government shutdown and
reduced tension over Iran kept prices in check.
    Brent crude rose 30 cents to $109.31. U.S. oil
 rose 61 cents to $103.92. 
    Gold slipped to $1,306 an ounce from $1,316.69.
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