* U.S. government still shut down; debt ceiling deadline
* U.S. 1-month T-bill rates highest since November
* Wall Street slumps; dollar hits eight-month low
By Wanfeng Zhou
NEW YORK, Oct 3 Major stock markets lost ground
on Thursday and the dollar hit an eight-month low as worries
grew that the budget standoff in Washington would drag on and
become intertwined with the looming and more complex fight over
raising the U.S. borrowing limit.
U.S. stock indexes fell about 1 percent as the partial U.S.
government shutdown entered a third day and after President
Barack Obama maintained his defiant tone by reiterating in a
speech that he would not meet Republican demands to scroll back
provisions of his healthcare reform in exchange for reopening
Wall Street briefly extended its losses and the dollar
dropped on reports that gunshots were fired at the U.S. Capitol,
but the moves were reversed after news that the shots were fired
outside the building.
Analysts expect investor patience to run out if the
government shutdown lasts more than about a week as the debt
ceiling deadline approaches. U.S. Treasury
Secretary Jack Lew has said the United States will exhaust its
$16.7 trillion borrowing authority no later than Oct. 17.
Failure to raise the debt limit could damage not only the
United States but the rest of the global economy, International
Monetary Fund chief Christine Lagarde said. Concerns about a
U.S. default have driven up the cost to insure Treasuries, while
U.S. one-month Treasury bill rates hit their highest level since
"The fact is that every day we are looming closer and closer
to the debt ceiling issue, which is the real concern," said
Randy Frederick, managing director of active trading and
derivatives at Charles Schwab Corp. in Austin, Texas.
"While market losses haven't been too big during shutdowns,
we did retreat about 17 percent in summer of 2011 just before
raising the debt ceiling."
MSCI's world equity index, which tracks
shares in 45 countries, fell 0.4 percent to 382.66. It has lost
more than 2 percent since its recent high on Sept. 19.
The Dow Jones industrial average ended down 136.66
points, or 0.90 percent, at 14,996.48. The Standard & Poor's 500
Index fell 15.21 points, or 0.90 percent, to 1,678.66.
The Nasdaq Composite Index dropped 40.68 points, or 1.07
percent, to 3,774.34.
Stocks and Treasury yields bounced off the day's lows after
The New York Times reported that House of Representatives
Speaker John Boehner said he was determined to prevent a
A spokesman for Boehner, the top Republican, said he has
always said the country will not default on its debt, but that
there are not enough votes in the chamber to pass a debt limit
hike without added provisions.
Market volatility could increase if the deadlock continues
as concerns about the economic impact increase. Goldman Sachs
estimated a short-term shutdown would slow U.S. economic growth
by about 0.2 percentage point, while a weeks-long disruption
could weigh more heavily - 0.4 percentage point - as furloughed
workers scale back personal spending.
The dollar fell 0.2 percent against a basket of currencies
, having touched an eight-month low of 79.627, on views
that the shutdown diminishes the chances of the Federal Reserve
reducing monetary stimulus this year. The euro firmed 0.3
percent to $1.3619.
European shares dropped 0.4 percent to close at
U.S. DEFAULT RISK
Short-term U.S. Treasury debt yields rose on fears that
lawmakers would not raise the debt ceiling before a mid-October
deadline, which could wreak havoc in key funding markets.
That worry was seen in the inverted bill yield curve, with
one-month bills set to mature on October 31 - two weeks after
the date the debt ceiling must be increased - having risen above
six-month bill rates. The rate on that bill touched 0.17 percent
on Thursday, highest since November, compared with a 0.03
percent rate for the issue that matures one week later.
The cost to insure U.S. government debt also soared.
Investors would pay about 46,000 euros to insure 10 million
euros worth of Treasuries for a year on Thursday, according to
Markit. That was the highest premium on one-year U.S. sovereign
debt since July 2011 during the first debt ceiling showdown
between Obama and top Republican lawmakers.
Benchmark 10-year Treasury notes were up 2/32 in
price to yield 2.61 percent.
U.S. data earlier showed the number of Americans filing new
claims for jobless benefits edged up last week, while growth in
the U.S. services sector cooled last month.
The Labor Department said the government's employment report
for September will not be released as scheduled on Friday due to
the shutdown; a new release date had not yet been set.
Spot gold traded little changed $1,316 an ounce.
Oil prices fell on concern the U.S. government shutdown will
hurt energy demand. Brent crude was down 19 cents to
settle at $109.00 a barrel. U.S. oil fell 79 cents to
settle at $103.31 a barrel.