GLOBAL MARKETS-Treasury bill rates rise, U.S. stocks fall as Washington talks stall

Tue Oct 15, 2013 6:00pm EDT

* U.S. debt, budget talks stall
    * Dollar falls vs yen, euro
    * U.S. stocks end lower, futures drop
    * U.S. Treasuries prices fall; Fitch puts U.S. on credit
watch


    By Caroline Valetkevitch
    NEW YORK, Oct 15 (Reuters) - U.S. stocks slid and short-term
Treasury bill rates jumped on Tuesday as U.S. Senate
negotiations stalled and prospects for an agreement soon to end
the U.S. government's budget and debt impasse weakened.
    After Wall Street's closing bell, stock futures fell after
Fitch Ratings placed the United States' 'AAA' credit rating on
watch negative, citing the impasse in Washington.
    Earlier, the Treasury's weekly auctions of three- and
six-month bills drew below-average demand as investors become
increasingly concerned about the chances of a delayed or missed
coupon payment. The value of bids received for the sales over
those accepted was the lowest since 2009. 
    The U.S. political standoff initially showed signs of giving
way to a Senate deal to reopen federal agencies and prevent a
damaging default on federal debt. The deadline to lift the U.S.
debt ceiling is Oct. 17. 
    Senate Majority Leader Harry Reid, a Democrat, and his
Republican counterpart, Mitch McConnell, ended talks on Monday
with Reid saying they had made "tremendous progress."
 
    But on Tuesday the Senate halted discussions on its own plan
and waited for the Republican-controlled House of
Representatives to come up with an alternative proposal before
Thursday.
    "The odds that there won't be a deal over the next month are
near zero, but there is some chance we won't see something by
the 17th. If that happens ... we could easily correct 3-5
percent," said Jim McDonald, who helps oversee $803 billion as
chief investment strategist at Chicago-based Northern Trust
Global Investments.
    On Wall Street, the Dow Jones industrial average 
ended down 133.25 points, or 0.87 percent, at 15,168.01. The
Standard & Poor's 500 Index was down 12.08 points, or
0.71 percent, at 1,698.06. The Nasdaq Composite Index 
was down 21.26 points, or 0.56 percent, at 3,794.01. 
    MSCI's world equity index, which tracks
shares in 45 countries, was down 0.2 percent, giving up early
gains. In Europe, the FTSEurofirst 300 ended up 0.9
percent.      
    In the U.S. Treasury bill market, yields on two-year
Treasury notes issued nearly two years ago and maturing on Oct.
31 rose to just over 0.7 percent from near zero percent because
prompt payment of the principal due on Oct. 31 was seen at risk
due to the potential failure to raise the debt limit.
 . 
    Until the $16.7 trillion statutory borrowing limit is
actually increased, few investors are going to buy Treasury
bills that come due in the latter half of October because of the
possibility of a "technical default," analysts and traders said.
    
    The benchmark 10-year U.S. Treasury note was
down 13/32, its yield at 2.7276 percent. 
 
    
    FITCH WARNS
    Fitch surprised investors with its warning on Tuesday.
    It is the only one of the three major credit rating agencies
to have a negative outlook on the U.S. sovereign credit.
Standard & Poor's downgraded the rating to AA-plus in August of
2011 during the last debt ceiling impasse.
    "It is surprising because all the three major rating
agencies have said that they have full confidence that a deal
will be reached and the U.S. will pay its obligations," said    
Michael Woolfolk, senior currency strategist at BNY Mellon in
New York.
    
    DOLLAR FALLS VS YEN
    The dollar fell to session lows against the yen as talks on
raising the debt ceiling floundered.
    Senator Richard Durbin, the second-ranking Democrat in the
Senate, said Senate Republican leader Mitch McConnell would have
to wait for some signal on the next steps from House Speaker
John Boehner before he takes any further moves.
    The dollar fell against the yen to 98.13 yen 
following Durbin's comments. Earlier, it hit a two-week high of
98.72 and was last at 98.41, down 0.2 percent. The dollar also
dropped to the day's low versus the euro, which rose to session
highs of $1.3531. The euro, however, was still down on
the day, falling 0.3 percent to $1.3518.

    GOLD RISES
    Gold prices rose, reversing sharp losses posted earlier in
the session, as the ongoing fiscal impasse in Washington
triggered safe-haven buying.
    Spot gold was up 0.7 percent at $1,281.16 an ounce,
off a high of $1,287.90 an ounce. The precious metal plunged to
its lowest point since July 10 at $1,251.66 in early trade.
    Oil prices fell on both sides of the Atlantic as the hope
for a deal to end the U.S. debt crisis steadily diminished.
Brent crude futures settled down $1.14 at $109.90 a
barrel in its third straight losing session. U.S. oil 
settled down $1.20 at $101.21 a barrel.